Top 9 Reasons to Consider Refinancing Your Mortgage

As your individual financial profile changes, along with changes to the overall economic and market conditions, it makes sense to periodically evaluate the terms of your current home mortgage. The list below highlights commons reasons people consider restructuring their loan agreement, so their payment schedule is aligned to current economic realities:

1. Trends in interest rates are rising

Interest rates have trended downward for several years. 30 year mortgage rates a few years ago approached 7%, although currently they are averaging about 5%. 15 year mortgage rates are recently being reported at about 4.5%. Many people are interested in refinancing higher rate loans and locking in these lower rates, as many are forecasting an increase in interest rates as the economy continues to improve.

2. Your current mortgage payment is too high given your current monthly income

In the same way that interest rates have varied significantly in the last several years, layoffs, hiring freezes, and an overall dismal employment picture has resulted in a decrease in household incomes for many families. The new economic realities have families looking for every opportunity to decrease monthly expenses, and there are times when refinancing to a lower interest rate, or extending loan terms make sense for individuals.

3. You’ve paid down outstanding credit card balances and paid off other loans

On the other hand, with a renewed focus on decreasing debts, income levels for some families in the U.S. have been steady in the last few years. Some in this group have been disciplined about decreasing household debt. With this renewed focus on decreasing debt, they are interested in applying this discipline to paying off their mortgage. For these families, refinancing a 30 year mortgage to 15 years is an attractive proposition.

4. A job promotion has increased your monthly income

There are sectors of the economy that continue to grow and prosper. Individuals who are seeing steady career progression and increased income see the opportunity to apply a larger percentage of the household income to paying off their mortgage obligation. In these situations, comparing the payoff schedule of a 15 year loan compared to a 30 year loan motivates people in this situation to switch from a 30 year to 15 year loan. As an added bonus, many in this group can eliminate Private Mortgage Insurance (PMI) payments if they have built at least 20% equity in their home.

5. You’re planning a remodeling project

Decisions on how to structure your mortgage payoff is not always strictly an income or debt reduction calculation. At the end of the day, your mortgage is tied to your home, which directly impacts your lifestyle, comfort, and family experience. Some families are opting to restructure a mortgage, to free up money to invest in their home and their lifestyle, whether that means a remodeled kitchen, an added bedroom, a back porch extension or swimming pool.

6. A 15 year mortgage will allow you to achieve debt-free status.

With the economic downturn in the last couple of years, many people are motivated to decrease debt and be in more control of their financial picture. A determined focus on being debt free in a 5 or 10 year period makes a 15 year mortgage appealing to this group of homeowners.

7. Your adjustable rate mortgage (ARM) payments are projected to increase

With so many things out of our control these days, people are looking for more certainty in their lives. Most experts predict that interest rates will increase as the economy shows signs of life in the coming months and years. Many families are electing to lock in affordable and predictable interest rates thereby providing more financial certainty and stability in the coming years.

8. Consolidate debt and decrease net monthly interest payments

For most families, a mortgage payment represents the largest single bill they pay on a monthly basis. And interest on a home mortgage usually is the lowest interest rate families pay on any given monthly bill. With credit card interest rates well into the double digits, some families choose to refinance their home mortgage, and cash-out some equity to pay off high interest credit cards and other high interest loans. People realize three advantages in this scenario – going forward they are paying debt off at a lower interest rate, this interest is tax deductible, and they have the added convenience of paying a single consolidated bill every month.

9. Take advantage of adjustable rate mortgage (ARM) lower rates

For people who will not be in their home for many years, the higher payments of a 30-year fixed rate mortgage may not make sense. ARMs typically have lower interest rates in the first years of a mortgage than a fixed rate loan. When you will be in your home for a shorter period of time, the risk of an ARM increasing in the short term is manageable and predictable, and you may be able to take advantage of the lower early year payments.