Debt Reduction Advice | Debt Reduction Advice

If you have a mortgage lender that you work with, chances are that individual has contacted you during the last several months to discuss whether or not you’d be interested in refinancing. Mortgage rates are still near historic lows and locking in these rates can come with several advantages for the right situation. Determining the perfect time to refinance is impossible without a crystal ball since mortgage rates are constantly changing, but it’s hard to deny that now is a great time to consider locking in a lower rate.

Before refinancing, you should make sure that you feel confident that you’ll be in the home long enough to take advantage of the costs of refinancing–usually at least a few thousand dollars. Homes are not simply cash machines anymore that make refinancing an easy decision, but here are some good reasons to consider refinancing your mortgage loan.

- Lower Monthly Payments and Interest Expenses: One of the most common reasons to consider a refinance is to reduce the borrowing cost on the capital you borrowed from your mortgage lender. If your mortgage carries a 6% interest rate and you’re able to refinance to a 5% rate, you not only reduce your monthly payment but you reduce your overall interest expense for owning the house.

For example, a $200,000 mortgage with an interest rate of 6.3% would result in a total interest expense over the life of the loan of more than $231,000. Reducing the interest rate to 5% on the same loan amount would result in just over $186,000 in interest expenses, a savings of almost $50,000. If reducing overall interest expenses is important to you, you could also pay a slightly higher monthly payment in a 15 year fixed mortgage and reduce your total interest expense by more than $100,000 additional dollars.

- Lock in a Fixed Rate: There are still millions of homeowners with adjustable-rate mortgages that are counting down to substantial rate increases. A great reason to refinance is to lock in a rate that can’t jump higher when you’re not in a position to pay more each month. Many homeowners are in homes that have lost value, reducing equity positions and making refinancing more difficult, but if you’re in an adjustable rate loan and you plan to stay in the house for more than another year or two, refinancing would be a very good idea.

- To Improve Your Credit Position: Sometimes refinancing is necessary to obtain financing on something other than your home. If your debt ratios are too high and lenders are hesitant to make additional financing available to you, refinancing your mortgage loan can lower your monthly payment enough to make your debt-to-income ratio more attractive to lenders. This is something that you should be careful with because reducing one payment to take on another isn’t the right choice for everyone, but it’s worth considering if your options are limited.