When Does It Make Sense to Refinance Your Mortgage?

Mar 24, 2017

A couple looking at a tablet in their kitchenAre you considering joining the millions of homeowners who have saved thousands of dollars every year by refinancing their mortgage? Despite last Wednesday’s quarter-point rise in the federal funds rate, interest rates remain historically low. Moreover, you may have other compelling reasons to pay off your current mortgage and take out a new loan with more favorable terms for your current situation. Following are a few ways in which you may stand to benefit from refinancing your mortgage:

To take advantage of low interest rates before they increase again: If you didn’t refinance your home loan when interest rates reached their record lows, bear in mind that rates have only recently begun to inch back up. And with Federal Reserve officials projecting two more interest hikes in 2017, now is an opportune time to secure a lower rate – and potentially save tens of thousands of dollars (or even more).

To cash in on your improved credit: If you’ve worked hard to give your credit score a boost since you applied for your mortgage, you may find that you now qualify for a lower rate which can save you substantial money every month, and over the term of the loan. A credit score of 720 is considered excellent, and will help qualify you for the best interest rates. To learn more about the impact of your credit score on mortgage rates, visit http://bit.ly/HowCreditScoreAffectsYourMortgageRate.

To lower your monthly payment: By refinancing your mortgage at a lower interest rate, you may be able to lower your monthly mortgage payment by hundreds of dollars – and save yourself much more in interest payments over the years. But even for those facing financial hardship and unable to reduce their interest rate, refinancing may still be a viable option to help reduce monthly payments. For instance, you may be able to refinance back to a 30-year fixed rate mortgage if you only have 15 years left on your mortgage. While this can help keep you afloat by reducing your monthly expenses, it will, of course, result in your paying more money in interest with the additional years on your mortgage payment.

To consolidate high-interest debt: If you’re carrying high balances on other types of debt with steep interest rates, it may be a wise move to refinance your mortgage using a cash-out option. With cash-out refinancing, you refinance with a new mortgage that is for a larger amount than what you currently owe on your existing mortgage, and keep the difference between the two loans in cash or use it to pay off debt such as credit cards or auto loans. For some, this can be a sensible way to reduce your high-interest debt using the lower rates of a mortgage loan. In addition, mortgage interest is tax deductible, so you may also be able to reduce your taxes by using the cash-out refinancing option (be sure to consult a tax professional to assess whether this is the case for you). On the other hand, a cash-out refinance option means you’ll be paying interest on your home for a longer time. Furthermore, you’ll need to exercise discipline in order to prevent running up certain kinds of debt (e.g. credit card) again.

To cover a major expense or big purchase: Looking for funds to update your kitchen, cover college costs, buy an investment property, start a business, or even pay for an expensive (but necessary) dental procedure? In addition to using a cash-out refinance to consolidate debt, it can help you get the cash you need for an important investment, or offer you some relief when expenses get overwhelming.  At the same time, cash-out refinancing involves a higher degree of risk than other loans, and experts caution against using it for certain items, such as a luxury vacation. For more insight into shrewd use of a cash-out mortgage, visit http://bit.ly/NerdWalletCashOutRefinance.

Ready to explore whether refinancing your mortgage is the right move for you? Our Online Mortgage Center with Refinance Calculators is filled with valuable information on refinancing your home, including rates, fees, product information and how to applyHave more questions? Just contact us, and we’ll be glad to help!

Providing Financial Solutions to Take Care of Our Own

  • Accessibility
  • Federally insured by the National Credit Union Administration
  • Equal Housing Opportunity
  • NMLS ID# 409710

APR = "Annual Percentage Rate". Actual APR is based on your credit profile and may be higher than the lowest rate available. Posted rates may include promotional discounts and other terms and conditions. APY = "Annual Percentage Yield". Rates are subject to change without notice.

The Police Credit Union proudly provides banking and loan solutions including checking accounts, credit cards, auto loans and more for police and other law enforcement agencies and their families  in the Bay Area and beyond. Visit us at one of our branches in San Francisco, Pleasanton, San Mateo, San Bruno or Oakland, CA or check if you are eligible for membership and apply online today.

Site Design by ZAG Interactive. © 2019 The Police Credit Union.