1. Lower Your Mortgage Rate
The main reason to refinance your mortgage on your home is to simply get a lower mortgage rate. Despite declining rates, a lot of people haven’t refinanced. Rates are still low and it may not be too late to refinance. Many homeowners would like to refinance, but can’t because they have little or no equity due to falling home values. Check your home value here.
2. Convert an ARM
Stability-driven borrowers are leaving behind adjustable-rate mortgages and moving onto refinancing into fixed-rate loans. Since most people’s concerns are regarding inflation, if they have an adjustable loan, that’s the primary reason they’re getting out of them. This isn’t because you can get them at a better rate, but simply because you can get them at a rate that is stable.
Other borrowers may switch from one hybrid ARM to another. This is something for people who are in a five-year ARM that they originated four years ago, that was getting ready to adjust. Even though the rates are about to adjust downward, you have the chance to get a new 5/1 ARMs to extend low rates another five years.
3. Put Cash in Your Pocket
This isn’t quite a refi, per se, but we’re still going to include it. Homeowners without a mortgage sometimes get a mortgage loan to put cash back in their pockets. Believe it or not, there’s plenty of people who don’t have a mortgage. Maybe you want to go to on that dream vacation, buy a second home with cash, or pay for college tuition. You can easily cash out your first home and take the cash and go down there without a need for financing contingency, and you’ll also be in a better position to bargain. Ever consider starting your own business? Depending on the risk involved, you may also take out a mortgage on a paid-off property to start your business or for any other reason.
4. Debt Consolidation
This one is pretty common. When house prices were rising by 10 percent or more a year, millions of borrowers got cash-out refinances. They refinanced for more than they owed, got cash, and spent or invested it. The cash-out refi quickly came to an end when the housing bust began. But there are still a few cash-out refinancing options available.
5. Cash Out to Purchase Property
One thing that’s becoming more of a trend now is that homeowners are taking cash out to purchase another property. Primarily, it’s to buy investment properties. However, by refinancing to buy property you can bring up unexpected tax and mortgage underwriting issues. A lot depends upon how the refinanced house and the new property will be used. For example, which property will be the primary residence? Will the other property be rented out? These are issues for a financial advisor or tax professional to figure out.
6. Life Circumstances
Unexpected life circumstances may lead to a refinance. Unexpected medical expenses or divorces can often lead to refinancing. In the case of divorce, a refi may be used as a means of removing the your former spouse from the note. Situations like this has less to do with rates and is more about timing.
7. Consolidate Two Mortgage into One
Some homeowners may want to use the strategy of combining their first mortgage with a home equity line of credit. There are a lot of people who choose this method, even if their rates on their home equity line of credit is 3 percent, refinancing to get rid of them. You may be curious as to why you would get rid of a loan with such a low rate? Usually if you’re worried that five years from now, that rate jumps up to 12%, 11%, or even 13%?