The Federal Reserve raised its benchmark interest rate .75% in September and concerns over how this would affect the personal finances of millions of Americans started to arise.
While an increase in rates may help tame inflation, they don’t always help consumers. However, some homeowners may still benefit from mortgage refinancing. In fact, even with the rate jump, select homeowners can still save money with a refinance.
Pay Off Your Loan Early
The 30-year home loan is the most popular due to the fact that it spreads out to more manageable payments. This can take decades to pay off the loan. But what happens if you want to finish your loan sooner to eliminate what’s likely your biggest monthly bill. Then a mortgage refinance loan may be worth pursuing. By shortening the loan term you’ll be able to pay it off and build up equity in the house faster. Just be aware that reducing your loan term may make your monthly payments go up, albeit for a shorter period.
Drop Your PMI
If you originally purchased your home with a down payment of less than 20% of the home’s value the lender probably tacked on PMI, private mortgage insurance, to your monthly payment. If the value of your home has grown since the time of purchase you may be able to refinance your mortgage loan to remove this payment. Just make sure the numbers make sense.
Cash-out refinancing allows a homeowner to take out a new loan for a larger amount than what they owe on their current loan. They then use the new loan to pay off the old one and keep the difference between the two as cash that can be used as the home owner sees fit.
Reverse mortgages permit homeowners above the age of 62 who have completely paid off or paid off most of their mortgage to take out a portion of their home’s equity. This would qualify as tax-free income. It does need to be repaid if the homeowner dies or decides to sell the home. Still, it may be worth pursuing if the cash is needed.
Can’t Predict The Future
The current state of mortgage rates and mortgage refinance rates are clearly not as advantageous as they were in 2020 and parts of 2021. But, if inflation doesn’t cool, the current rate environment may be the best homebuyers and homeowners can expect for the foreseeable future. So don’t dismiss the potential benefits of refinancing, even now.