Since you bought your house, has your salary increased significantly? Have you had another child? Started your own business? If any of these are true, it's a good idea to reassess your mortgage. Perhaps you can find a mortgage product the better suits your financial situation. Or you may be able to accelerate your payments to boost your home equity faster. Regardless, as your career and family grow, your finances change and you might able to lower your monthly payment or pay off your home faster.
Have interest rates dropped?
If you have a fixed-rate mortgage and interest rates have fallen, you might want to consider refinancing. Refinancing is when you replace your current mortgage with a loan that offers better rates and terms. This can end up saving you a significant amount of money on your monthly mortgage payments. If you do decide to refinance your mortgage, be sure that the fees and costs associated with refinancing are worth the new rates and terms. Research the loan market and stay updated on trends so that you know when the right time is.
Have interest rates increased?
If you have an adjustable rate mortgage (ARM) or hybrid ARM, rising interest rates can increase your payments. Make sure you "stress test" your ARM: Can you afford to pay up to your lifetime rate cap? If not and rates continue to rise, refinancing to a fixed-rate loan may help limit your exposure to rising rates. Again, make sure the costs of refinancing don't outweigh any benefit.
Other things to consider when refinancing
How do today's interest rates compare to the one you've got? If rates have dropped or you want to lower your monthly payment, you might want to consider refinancing. Refinancing your mortgage means replacing your existing mortgage with a new one that offers better rates and terms. If it can save you money and help you achieve your current financial goals, it may be a good idea to go ahead and refinance. Make sure you consider the costs associated with refinancing. If the added costs are too high and your monthly payment isn't lowered enough, it might not be worth your time and money.
Decide whether to use your home equity
Your home equity can be used for a variety of wants and needs. You can borrow against it for college tuition for your children, or you can use the money to finance home improvements. This may be one of the least expensive ways to borrow, and the upgrades you make to your home might add significant value to your home. Experts do warn against using your home equity to get cash for everyday needs, so if you are having a hard time making end meets, it may be a better idea to reexamine your budget and make some changes regarding your spending.
As you gain more equity in your home, it becomes a more and more valuable financial resource. Be sure your mortgage works for you and you are getting the best deal.
