Six Reasons To Consider Refinancing

BY LISA SCONTRAS

In an average month, First Hawaiian Bank assists between 250 and 300 homeowners refinance their home. Last month, that number shot up to nearly 1,000.

Why the large jump in refi applications? Here are the top six reasons homeowners in Hawaii are refinancing their mortgage.

1. Historic low rates

Without a doubt, the number one reason to refinance today is to save money. Current 30-year rates are at 4 percent with 2 points, or 4.5 percent with no points. For many, a reduction of one percent or more can equal a substantial monthly savings.

“Each customer has a different goal,” says Joy Cabildo, senior vice president of the residential real estate division at First Hawaiian Bank. “Some just want a lower rate to save money. Some want to use the lower rate to shorten their loan from 30 years to a 15 year loan.”

Say you have already paid on your mortgage for 10 years. Shortening your term at this point to a 15-year loan can possibly save you thousands of dollars in interest.

2. Converting an ARM to a fixed-rate loan

Adjustable rate mortgages seemed like a good idea initially. But if your fixed interest period is about to expire or future step-ups in your adjustable mortgage have you worried, today’s 30-year lows make converting to a fixed-rate mortgage something to consider. If you’re plans are to own the home long term, this option might be less risky than sticking with an adjustable rate loan.

3. Consolidate debt

If you’re paying high interest on your credit cards, it might make sense to consolidate all your debt into one low-interest loan – and one single payment. By taking out a new larger loan, you can pay off your original loan, plus any credit cards. Using this option responsibly can breathe new life into the family budget.

“Debt consolidation makes it easier for someone to budget,” says Cabildo. “It also gives people peace of mind when all the bills are now just one bill.”

4. Take cash out

Especially if you know you are going to need a new roof, new plumbing, or have college expenses to pay, using your equity for a onetime expense might make more sense than using a credit card. Having equity in your home is comforting – but having all those dollars tied up in the value of your home may not be the best use for them.

“Money is real cheap right now,” Cabildo says. “Lower than a credit card.”

5. Consolidate equity line

Interest on equity lines of credit is low right now, but will likely rise in the future. Some homeowners are paying off their equity line by refinancing their first mortgage. And, Cabildo suggests keeping the equity line of credit open even after you’ve paid it off, for emergencies.

“You never know when you may need a big chunk of cash, and refinancing later would mean giving up the low rates,” she says.

6. Mortgage-free homeowners

Some homeowners who have paid off their mortgage are taking advantage of the low rates by entering into a new mortgage as a way to harness the equity they’ve built over the long term. This option may not appeal to everyone but if you are looking to help adult children buy a home or start a business it can be an excellent way to tap into your equity as a resource. Check with your tax professional. A new mortgage can be a way to borrow your untapped equity at a low interest rate and it’s tax deductible.

Refinancing can make your financial future more manageable and makes sense in certain circumstances. Cabildo advises homeowners it is essential they run the numbers and do their homework before borrowing. With rates near 4 percent, the results can be pleasantly surprising.

“Some people have a lot of equity in their home and don’t want to sell it,” Cabildo says. “Refinancing is a way to put your house to work for you.”

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