1. Go From An Adjustable Rate Mortgage (ARM) To A Fixed Rate
It's important to think about mortgage rates and what they're doing. Are they rising or falling? If you're currently running with an adjustable rate mortgage (ARM), you're taking a slight gamble because the mortgage rates may rise to a rate that's higher than that of a fixed rate mortgage. That being said, it may be wise to consider refinancing to a fixed rate mortgage.
On the other hand, it's also important to consider the amount of time you plan to stay in your home. If you're moving to bigger and better things in a few years, it may be better for you to stick with an ARM. A good rule of thumb is seven years. If you plan to live in your home longer than seven years, a fixed rate mortgage may be your best option.
2. Go From A Fixed Rate To An Adjustable Rate Mortgage (ARM)
Again, you must consider the length of time you plan to stay in your home. The average person moves every nine years, so it may not be to your advantage to pay a higher interest rate for a long-term fixed rate mortgage. If you plan to move in the next five to seven years, consider refinancing to an ARM. You'll get a lower rate now and lower your monthly mortgage payment.
3. Lower Your Mortgage Payments
Believe it or not, a small drop of as little as one half of a percentage point in interest will lower your monthly mortgage payment. By refinancing, you'll avoid paying too much every month for your loan, thus saving some serious cash. Actually, there are multiple ways you can lower your monthly mortgage payment. The first option is as simple as refinancing your mortgage at a lower interest rate. A lower rate usually means a lower monthly payment.
Your second option is to change the term of your mortgage. By stretching your balance over a longer period of time, you'll lower your monthly payment. On the flip side, if you're currently running with a longer term mortgage and long-term savings is a priority, you may want to consider refinancing at a shorter term. Your payment will be higher, but you'll pay much less in interest over the life of the loan, saving you thousands in the long run.
Option three is refinancing to an interest-only loan. An interest-only loan gives you the ability to pay only the interest for a defined amount of time. You also have the power to pay as much principal as you like. The biggest advantage of an interest-only loan is the flexibility of paying less or more, based on your desire or need to allocate your funds elsewhere, such as a 401(k) retirement savings account or your child's education.
4. Cash In On The Equity Of Your Home
Did you know you can use the equity you've earned in your home? Access those funds through a home equity loan or a cash-out refinance. If you want to renovate your house, consolidate your high-interest debt or fund your child's education, accessing your equity is an option.
5. Consolidate Debt
Credit card debt and mortgage debt are not the same! Financially speaking, the difference between credit card debt and mortgage debt is thousands of dollars. Unlike your mortgage, the interest charged on your credit card debt isn't tax deductible. Also, consider the interest rates. The interest rate on a mortgage is generally substantially lower than that of a credit card. Therefore, credit debt is often referred to as "bad debt," as opposed to a mortgage, which is considered "good debt." You can save a lot of money in the long run by using home equity loan to pay off your high-interest credit card debt. Another smart move is to use your home equity to finance expensive purchases rather than using your high-interest credit cards. Consult your tax adviser regarding the advantages of using your home equity for large purchases.