Do you want to take advantage of favorable market conditions? Do you need cash to finance the next step in your life? If so, refinancing your home loan might be a good option for you! However, when considering a financial decision as significant as changing the term on your home loan, you may want to consider if you’re refinancing at the right time and for the right reasons. In today’s blog, we’ll review some of the factors that will help  determine when and why to refinance your home loan. If you’re seriously considering refinancing your home loan, be sure to call Pineywoods Mortgage in Tampa! We can advise you on the best refinancing options for your financial situation and goals, and we’ll likely be able to offer you favorable terms. Give us a call today! But first, check out a few tips on smart refinancing. 

As a quick review in case you’re unfamiliar, refinancing is the process of getting a new mortgage to replace your original home loan. Refinancing is done to allow a borrower to either obtain a new loan with a better term and interest rate, get cash from the value of their current mortgage, or lower their current mortgage payments to a longer term with payments of more manageable amounts. The latter two purposes for refinancing can be risky for borrowers with poor credit or significant amounts of debt. 


Good Refinancing Situations

There are plenty of good reasons why you might want to refinance your home mortgage. For example, if your income or credit score have increased since you originally took on your mortgage, refinancing your mortgage can allow you to secure one with better terms and a lower interest rate, as your credit score in particular is a huge determinant of the quality of mortgages available to you. 


If the value of your home has increased since you purchased it, refinancing your mortgage while its value is high can allow you to extract value from the favorable market conditions to either pay off your mortgage more aggressively, or take out cash to pursue another investment or significant life step. If you’re looking to go back to school, invest in additional property, build an addition to your property, or perhaps take that once-in-a-lifetime vacation you’ve been dreaming of, it might be worth it to evaluate your home’s value to see if you can capitalize on it. 


If you’ve built up over 20% equity in your home, refinancing your home may allow you to move the requirement to maintain mortgage insurance. Some federal loan programs may require you to maintain mortgage insurance even with significant equity in your home, but many conventional loans no longer require it after you achieve 20% equity in your home. Getting that payment off your books can allow you to pay off your mortgage even more quickly!


Risky Refinancing Situations

There are also a fair number of situations in which refinancing your mortgage could put you at significant financial risk. If you’re seeking a way to lower your monthly mortgage payments, refinancing may not be the wisest way to ease your financial burden. Yes, you can certainly refinance a home loan to lower your monthly payments, but to do so, you’ll likely end up having to extend the term of your mortgage and substantially increase the amount of interest you’re paying on it. If you don’t want to significantly lengthen the term of your mortgage, it may be worth it to explore moving into a more affordable home, instead. 


Similarly, refinancing your mortgage to get cash out is not generally an advisable idea unless your home’s value has increased. Refinancing your mortgage to get cash out only lowers your equity in your home, potentially extending the length of time you’ll be required to pay for mortgage insurance. 


If you’re considering refinancing your home, be sure to call Pineywoods Mortgage in Tampa! We’re a local mortgage broker that knows Tampa better than the big brand brokers, and we’ll be able to advise you on the state of the market and whether you’re in a good financial situation to use the power of refinancing to your advantage. Schedule an appointment with us today!