With the level of turmoil in the financial markets the past few years, one thing that we have all recognized the need for is a good, solid financial base. Entire countries are going broke and needing to be bailed out, so individuals need to take advantage of every opportunity that comes their way. Right now, one of those opportunities could be the refinancing of your mortgage.
At the moment, mortgage rates are at or near an all-time low. To be frank, I never imagined a day when you could finance a home for less that 4%; it still seems unreal. And yet, these are the times we live in. But not only is it a great time to buy a home, it’s also a fantastic time to refinance if you’re already a homeowner (and haven’t refinanced in the past few years), and here’s why:
1) Great Rates – Just doing some window-shopping will reveal that refinance rates are around the 4% mark. That’s quite a bonanza compared to just a few years ago, and refinancing would save most of us a pretty penny in terms of lower payments.
2) Extra Cash – As already mentioned, refinancing would lower your monthly mortgage. The flip side, of course, is that you now have more spending cash at your disposal. It’s as if you’ve been given a raise! Of course, the smart thing to do – assuming you don’t have a pressing need for the money (e.g., college tuition, kids’ braces, etc.) – is to max out your retirement plans. I know, I know: I just talked about how volatile the markets are, and now I want you to put this newfound cash immediately at risk. The truth of the matter, however, is that the value of any cash you receive will diminish over time unless you can invest it such that the returns outpace inflation. Thus, we come back to the stock market. However, I like to think that most of us have time to ride out any short-term market fluctuations, such that by the time we’re ready to withdraw cash from our retirement accounts the world will be much more stable, at least financially.
3) Cash Out – If you are having financial difficulties, refinancing can let you take some of the cash out of your home and apply it as you see fit. Just be aware that you may not get the best available rate if you take cash out, and you will decrease the amount of equity you have in your home. (Other options to refinancing solely for this purpose include a home equity loan or home equity line of credit, but those are discussions for another day.)
In short, there can be some nice benefits to refinancing at current rates, but it’s not all sunshine and roses. Depending on the terms of the loan, you may find yourself back with a 30-year mortgage after several years of payments under your prior loan. Also, don’t forget that loans aren’t free, and there are likely to be several thousand dollars in closing costs. Still, I think after putting all the pros and cons on the scales, you’ll come out ahead refinancing at today’s rates.