You should refinance when it makes sense to you and based on how long you expect to hold on to the mortgage and property and not whether interest rates are going up or down.
Here are six good reasons to help you decide if refinancing makes sense for you.
1. Lower your rate and payment
If you don’t already have a super-low rate, you might still be able to get a rate that’s lower than your current one. Rates in the 4 percent to 5 percent range are still very attractive.
2. Lock in a fixed rate and payment
Adjustable-rate mortgages, or ARMs, have monthly payments that can move up and down as interest rates fluctuate and exposes you to the risk of a higher payment. If you refinance into a fixed rate, the risk goes away.
3. Stop paying mortgage insurance
Private mortgage insurance, or PMI, protects your lender if you don’t pay back your loan. You’ll usually have to pay for PMI if you make a down payment that’s less than 20 percent of your home’s purchase price when you buy or your equity is less than 20 percent of your home’s current value when you refinance. Refinancing from a loan with PMI to a loan without PMI might make sense even if your rate is higher because you won’t have to pay the monthly mortgage-insurance premium.
4. Remove a borrower
Whoever is a named the borrower on a loan is responsible for making the payments. That’s true even if you and your spouse get divorced and your divorce decree assigns responsibility for a loan you and your wife got jointly to you or her solely. Your agreement might require you to refinance to remove your former spouse.
5. Get cash out to spend
Another potential reason to refinance is to extract cash from equity. The cash can be used for any purpose like for instance consolidating and paying off other debts and thus saving money on payments and also being able to write off the interest paid at tax season.
6. Get cash to invest
Rising home values create opportunities to refinance and extract cash to invest in other assets. Programs are available to help you qualify for an investment home based on rent cash flow only.