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Should you refinance?

Posted on September 29, 2014 by Ray Williams (NMLS #216267).

Interest rates have been slowly rising this year. Values of homes have been rising as well. In the last few days I have been getting calls from past clients to check and see if they should refinance. Many people think there is a common opinion that you should be able to save .50% in rate to make it worth your while. This is ambiguous! What are your goals? How long will you keep the house? Here are a few reasons that may make sense to refinance even when it may appear the rate isn’t going to go down much.

1) Get rid of PMI- If you have an FHA mortgage and took it out in the last year or so, this will stay on your loan as long as you have the mortgage. If you have a $250K mortgage, this would be about $281 / month in PMI alone. Even if the rate stays the same, you will save bundles! You may be able to refinance into a conventional mortgage. You don’t necessarily have to have 20% equity to do this.

2) Pay off consumer debts – If you have had your house for a handful of years, and benefited from the rising home appreciation in Denver, this can make sense. I have had some clients recently with the ability to take out $30-$50K and pay off higher interest debt. If you have substantial credit card debt, how fast will you pay it off on your own? What if you have a few car loans? This is all about cash flow. And you have to have the mindset that once you pay it off, you won’t take out more credit card debt, or this is a potential trap.

3) Shorten the term – You have now realized this home is where your heart is and you plan on staying. What if you shorten the term to a 15 or 20 year fixed rate mortgage? The 15 is more popular, but the 20 year fixed rate can give you a payment similar to your 30 year fixed, if you have had your current mortgage for some time. You may be able to shave years off your mortgage and not really change the payment.

A good place to start is checking what you think your home may be worth. If you have a real estate agent in your life, you can ask them. There are many resources online as well. Past that a qualified lender can assess your profile to see and advise if this makes sense to approach and why. Check out our mortgage calculator to see what your payment may be. And from there you can apply online or give us a call direct 303-779-0591 for more questions.

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