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Why You Should Refinance

Most people who consider refinancing their home mortgages do it to get a lower mortgage rate. According to the Bureau of Economic Analysis the average interest on an outstanding mortgage at the beginning of 2010 was 5.979%. With mortgage rates at historic lows and well below 5.979%, refinancing is a no-brainer. But what many home owners don’t know are the other reasons why they should consider refinancing their home mortgages.

While obtaining a lower mortgage rate is the number one reason for refinancing, stability-hungry home owners are also refinancing as a means of ditching adjustable-rate mortgages. There’s a peace of mind that comes with locking into a 30-year fixed rate mortgage. In some cases home owner’s not only get a better rate but they also get a stable rate.
Other borrowers with a five-year Adjustable Rate Mortgage (ARM) that originated four years ago and is ready to adjust are getting new 5/1 ARMs to extend low rates for another five years. While this isn’t technically considered a refinance, it’s almost as good as one since it allows for better cash flow for the borrower.

Many baby boomers who are mortgage-free are also taking advantage of refinancing, getting mortgages to put cash in their pockets. Whether they want to take a vacation to Florida or buy a vacation home there with cash, one way to do it is through refinancing. They can cash out of their first home, taking the cash to Florida so they don’t need a financing contingency. This puts them in a much better position to bargain for the home they want.

More and more home owners who have paid off their homes are taking out mortgages as a means of starting a new business. Several years ago in the midst of the housing boom when housing prices were rising 10 percent or more each year, millions refinanced to take cash out to buy pools, TVs, an RV or invest it. But since the housing bust, folks are using cash-out refinances to pay down their debt and credit cards. Or, people use cash-out refinancing to buy investment properties. Much depends on how the refinanced house and new property will be used, especially when it comes to unexpected tax and mortgage underwriting issues and it’s best to consult with a tax professional on such matters.

Other homeowners are combining their first mortgage with their home equity line of credit. Despite a 3% rate one a home equity line of credit, refinancing as a way of combining the two is just one way to get rid of an extra payment each month. Many homeowners are doing this because they’re worried their home equity line of credit rate will jump to 11, 12 or 13%.

Unfortunately, divorce is another reason why households refinance, using it as a means of removing the absent former spouse from the deed. It’s more coincidental that a homeowner’s divorce took place at a time when mortgage rates were at historic lows.

Everyone has a story for why they refinanced their home mortgage. One mother used her refinance money to bail out her son who was facing foreclosure on his own house. While financial experts would caution home owners against using refinance money in such a way, they’re clearly not a mother!

There are all sorts of reasons why now is a good time to refinance your home. But a mortgage refinance doesn’t just happen. It’s up to you to pick up the phone.