Ask most financial experts about the best time to refinance your home, and they’ll likely give you three scenarios—refinance when you can lower your interest rate, reduce the length of the loan, or if you need short-term financial relief and a lower monthly payment. It’s a valid answer.
But as you’ll find out, there are additional, less common reasons to refinance. We’ll tell you all about them here. But first, let’s tackle the most common reasons to refinance your home.
Lower Interest Rate
Interest rates have been on a wild ride since the pandemic. After 2021, the average mortgage rate jumped from 2.96 percent to 5.34 percent in 2022. As of February 2023, the average interest rate for a 30-year mortgage sits at 6.46 percent.
So, if you’re looking for a lower interest rate in 2023, you’re likely not going to find it.
Pay Off High-Interest Debts
At the close of 2022, the average credit card APR was a whopping 19.07 percent. So if you’re struggling with high-interest credit card debts, fear not. You may be able to use a cash-out refinance to pull a portion of your home’s equity and save thousands of dollars.
Switch to FHA and Eliminate Private Mortgage Insurance (PMI)
Most conventional loans require borrowers to carry PMI, which ranges from 0.22 percent to 2.25 percent of your mortgage. If you have a $300,000 mortgage, you could pay as much as $6,750 on PMI yearly—that’s a lot of money! If you qualify for an FHA loan, you can save that money. Why? Because FHA loans do not require lendees to carry PMI.
Shorten Your Loan Term
Do you need help keeping up with your monthly mortgage payments? If so, refinancing is a good option because you can opt for a longer loan term and reduce your monthly payment amount. But keep in mind that that interest rate will accrue over time. Thus, you will pay more money in the long run.
Upgrade Your Home
Home renovations are costly. The average kitchen remodel costs $22,000, and even just updating a bathroom can cost between $6,000 and $16,000, with a national average of nearly $11,000. That’s a lot of money to come up with—which is why many homeowners turn to cash-out refinancing to access their home’s equity and help cover these costs.
When Not to Refinance Your Home
So these are some of the reasons you should refinance your home. However, we do not recommend mortgage refinancing if you recently purchased your home, plan on moving soon, or pull equity on a cash-out mortgage to finance unnecessary purchases that do not provide a long-term investment.
Nikkael Home Loans: Your Mortgage Refinancing Specialist
Want to learn more about when you should refinance your home? Nikkael Home Loans has 60 years of combined experience in mortgage law, loan origination, and home protection. Plus, we’re attorney-owned and operated, so we have a higher level of ethics and accountability than you might find elsewhere. We can help you determine if a mortgage refinance is the right option for you. Request rates today to get started!