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Why Refinancing Still Makes Sense Amid High Rates

Read Time: 4 Minutes June 27, 2024

Even with mortgage interest rates hovering around 7%,1 refinancing your mortgage can still provide significant financial benefits. By changing your loan type, adjusting your loan term, or switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, you can potentially reduce your monthly payments and save thousands of dollars over time. Additionally, refinancing may help you eliminate private mortgage insurance (PMI), consolidate debt, fund home improvements, or even boost your retirement savings.

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Lowering Monthly Payments

Refinancing can help reduce your monthly mortgage payments by securing a lower interest rate or extending the loan term. Even if the interest rates are not significantly lower than your current rate, changing from an ARM to a fixed-rate mortgage can provide payment stability and predictability, which can be beneficial in a fluctuating market.

Eliminating Private Mortgage Insurance (PMI)

If your mortgage balance has reached 78% of the original purchase price and your loan is in good standing, PMI can be terminated. Refinancing can help you eliminate PMI sooner, allowing you to save on monthly payments. Without PMI, you can allocate the extra cash towards other financial goals.

Consolidating Debt

Using a cash-out refinance or a home equity loan to consolidate higher-interest debt can be a smart financial move. Here's how it works:

Cash-Out Refinance†

A cash-out refinance allows you to refinance your existing mortgage into a new one with a larger principal balance, pocketing the difference in cash. This lump sum can be used to pay off high-interest debts like credit cards, which can significantly lower your overall interest payments and simplify your monthly bills.

Home Equity Loan††

The Newrez Home Equity Loan program provides an alternative to a cash-out refinance, enabling you to tap into your home’s equity without changing your primary mortgage. This program allows you to keep your current mortgage interest rate while securing a second mortgage. The funds from this loan can be used for debt consolidation, home improvements, education costs, and more.

Funding Home Improvements

Home improvements are a popular use of funds from a cash-out refinance. Enhancing your home can increase its value, improve functionality, and boost your overall satisfaction with your living space. Consider using the funds for:

  • Energy Efficiency Upgrades: Improve insulation, install energy-efficient windows, or upgrade your HVAC system to reduce energy bills.
  • Home Expansion: Add extra living space, such as a new bedroom or a finished basement.
  • Curb Appeal Enhancements: Improve the exterior appearance of your home with landscaping, a new roof, or updated siding.

Investing in your home not only enhances your living experience but can also yield a return on investment when you decide to sell.

Improving Retirement Savings

Refinancing can provide extra cash flow, which can be directed towards building your retirement savings.

Building a robust retirement savings plan can provide long-term financial security and peace of mind.

Conclusion

Despite higher interest rates, refinancing your mortgage can still make financial sense. Whether you aim to lower your monthly payments, eliminate PMI, consolidate debt, fund home improvements, or enhance your retirement savings, refinancing offers various benefits. Each homeowner’s situation is unique, so it's essential to evaluate your financial goals and consult with a mortgage expert to determine the best refinancing strategy for you.

Strike While the Iron is Hot – Apply for a Refinance Today!

For more information and to explore your refinancing options, contact us today. We are here to help you find the best solution for your financial needs.


130-Year Fixed Rate Mortgage Average in the United States (MORTGAGE30US) | FRED | St. Louis Fed (stlouisfed.org)

†By refinancing an existing loan, the total finance charges may be higher over the life of the loan. We may transfer the escrow account balance from the current loan to the new loan. If the current escrow amount is insufficient due to changes in taxes or insurance, we may require additional money when closing on the new loan.

†† The rate on your existing mortgage will not change. The Newrez Home Equity Loan program requires borrower to obtain a second mortgage at current market rates. Loan amount based on underwriting guidelines Minimum 660 credit score. Minimum and maximum loan amounts apply. Program financing only available on properties with one existing mortgage lien and subject to maximum loan-to-value ratio. Not available in all states or territories. Other terms and restrictions apply. Please contact us for more information.

Learn more in our other educational series.

We’ve assembled a treasure trove of jargon-free information to demystify home-financing and arm you with valuable insights and actionable options.

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