Reasons to Refinance as Interest Rates Rise
It sounds counterintuitive to refinance as interest rates rise, but there are some cases where there is more to gain than lose.
Calculations regarding the duration and amount of the loan coupled with changing interest rates can make it a scary prospect. Get familiar with your current agreement with your lender to make sure you are making an educated choice.
Getting Out of the Strong ARM
You may feel like you’re in a chokehold with an Adjustable Rate Mortgage (ARM), but don’t worry. Refinancing even when rates are rising might be something that benefits you. ARM interest rates fluctuate, so your payments are not a reliable dollar amount. When they refresh every few years, you stand the chance of paying a lot more interest, especially in the scenario where rates are rising. This type of mortgage is best if you plan to stay in your home for the short-term. You can get out of an ARM by refinancing into a Fixed Rate Mortgage instead. Fixed rate loans keep your interest rate the same for the life of the loan. No surprise balloon payments.
Get Rid of the Extra
If a buyer has less than a 20% down payment, private mortgage insurance (PMI) is tacked on. PMI is built in to protect the lender in case you don’t pay the loan. Some lenders remove the PMI once you pay down 22% of the loan. You can also call and request it be removed when you owe 20%. Some loans make this a permanent designation. Check your paperwork. If you’re in a position to eliminate the PMI, refinance even if interest rates are rising.
Remove a Borrower
If you need to remove yourself or someone else from the deed, the loan needs to be refinanced. Optimally you’d do so when the interest rates are low, but if you need to remove someone legally, the sooner the better. Did you know that in a divorce settlement, the judge can award the house to whomever, but until their name is off of the paperwork, they are both still financially responsible? Lenders have no obligation to remove a name from the deed without refinancing.
Get a Better Loan
Maybe you already have a really good loan but have the opportunity to get a better one. This is all about the numbers game. You need to make calculations to determine which one would be the most finically viable for you in both the short-term and long haul. You should do different things based on how long you plan on owning the house. There are various scenarios to entertain before you decide.
Bottom line is that if it’s a better loan, even with a rising interest rate, then take it! Of course, it could be a situation where you may not have had the financial backing you do now and took a loan with less than desirable interest rates. You can correct that by refinancing. Even if the rate is rising, if it’s less than what you have now, you’ll still come out ahead.
Increase Cash Flow
Let’s say that interest rates are rising, but so are home values. You now have more equity than before. Equity represents the part of the house you actually own. You are borrowing the rest of it from the lender until you finish paying it off. You can take your portion out through refinancing and use it for whatever you want: remodeling, traveling or to repay debt and get out of paying interest. Basically, you can use it for temporary cash flow.
Invest in Yourself
You could use the equity in your house to have invested in other assets. This will work only under a specific set of circumstances, so make sure you understand all of the fine print before signing anything. Instead of using it for extra cash, you could invest in yourself. Take that money and put it into your retirement account where it not only helps secure your future but is also tax-free.
Refinancing has been made easy by two government programs designed for homeowners with FHA or VA loans. They’re called “Streamline” loans. It’s like an expressway to getting your loan refinanced. The process is supposed to be quick and easy because it requires less paperwork and inspections.
Trust in Us
The bottom line is you should come out ahead when the refinancing is complete even if the interest rate is rising. You should have lower monthly payments or a shorter-term loan.
Galaxy Lending Group will be with you from start to finish. Even if you don’t have a lot of experience with refinancing, we do and are ready to put it to work for you. We offer stellar service and competitive rates. If the time is right for you, contact us.