Considering a Refinance? There Are Many Ways to Go.
In response to world events that have occurred in 2020, many Americans are reevaluating their household finances and considering ways they can be smarter about how they manage their assets. For those who are homeowners, the option to refinance the loan on a home that has accumulated equity is a financial advantage that means different things to different people.
For some homeowners, a substantial amount of equity feels like having a large savings account. Others see refinancing as a way to pay off some of their debts sooner.
At the end of the day, the decision to refinance usually leads back to achieving your life goals. That’s why it’s important to consider all of the available options so you can settle on the one that best suits your specific needs. The answers to two questions will influence your final choice.
Question 1: Cash-Out Refinance or a Home Equity Loan?
One primary objective of cash-out refinancing is to siphon off hard-earned equity and apply it to things that improve your quality of life. Among the most common usages are home improvements.
Homeowners who use the cash-out option for home upgrades treat equity like a bank or investment account they can draw from. By refinancing and pulling a portion of the equity back in cash, you may be able to afford an amazing new bathroom, outdoor patio, or other home enhancements.
A well-planned cash-out refinance can leave your monthly mortgage payments where they are or even bring them a tad lower. Your lifestyle can actually improve and monthly bills aren’t negatively affected.
Home equity loans can achieve quality of life goals as well, but they are likely to create an uptick in your monthly expenditures. The two common types are a home equity loan and a home equity line of credit (HELOC).
When deciding which of these options could be a good fit for your situation, consider your monthly revenue comfort level against the value of paying off your home. A cash-flush homeowner may opt for a home equity loan or HELOC with an eye on paying off the property. But quality of life improvements can also be possible by tapping into that home equity piggy bank and maintaining the monthly status quo.
Question 2: Shorten the Loan or Lower the Payments?
Many homeowners consider going the refinancing route when interest rates dip like they have in 2020. Remember, the purpose of refinancing is not necessarily to get the lowest interest rate possible. The goal tends to be either shortening the life of the loan or lowering monthly payments to improve cash flow.
Equity can play a powerful role in changing the length of your mortgage from 30 years to 15 years, a move that can be timed to coincide with your retirement or other life factors. Even a slightly higher monthly payment can help achieve long-term goals.
For individuals in need of funds immediately, a refi can quickly free up cash that could be used to tackle a variety of expenses: braces for the kids, a much-needed vacation, or even to help you pay off other debts you might have. You may have to extend the length of your loan a few years, but you can gain peace of mind knowing that today’s needs are being met.
Help is Available!
Throughout the refinancing process, it’s important to remember that you will likely be balancing one aspect of your financial portfolio against another. This is not a negative, because the point of any refinancing strategy is to successfully identify and meet specific life goals, which owning a home helps you do. A licensed loan officer can help you do those things as well, so start the conversation today and find out which refinancing option is right for you!
