VIDEO: Should I Refinance? Leveraging Low Interest Rates & Debt Reduction

Even though I’m not a lender, I often get asked: “Should I refinance my house?”  The answer is always, it depends.  It depends on numerous factors.  Here are things to consider if you are wanting to refinance your home.

• How long do you intend to stay in your home?  Are you planning to relocate or upgrade anytime soon?
  • Short Term?
    • Is the cost to refinance your home greater than the savings from the monthly reduction in payment over the duration of time you plan to stay in the home?
    • Can an ARM or another mortgage type drop the interest rate enough and lower the payment enough to free up cash flow to further reduce other, more costly, consumer debt over the course of time you plan to stay in the home?
    • Will pulling out cash from the home allow you to increase the value of your home by completing property repairs, remodeling, and renovations?
    • Will you be planning to upgrade your home here locally in the short term?   Will you need cash from a refinance to renovate and prepare your home for sale? 
    • Will you need to pull out cash from your home as a bridge strategy for a down payment in order to purchase another home?
  • Long Term?
    • Can you afford to pay a higher monthly payment and shorten the length of the mortgage and own your home free and clear sooner?  Yes, refinance and pay more per month on your mortgage to pay off your home sooner!  That’s a cool debt reduction strategy!
    • Can you afford a way to lower total interest paid and payoff the loan as quickly as possible?  Perhaps by accelerating payments to principal balance.  Are you looking for a debt free lifestyle?
    • Do you want to update and improve your home so it can remain functional for the long term?
• How much money per month will be saved?
  • If the amount of money per month is not significant, why not make an additional payment to principal balance without the expense of refinancing.  This takes discipline and may not be for everyone.  Again, in my opinion, the goal is to lower the actual interest paid or the consumer debt owed to get you debt free.  Your cash flow position will greatly improve as you clear debt hurdles.
  • If the amount of money saved per month is significant, can the savings be redirected to payoff other consumer debt, such as auto loans or credit card debt?
  • If your monthly mortgage increases, how quickly will the loan be paid off and you become mortgage free?
• How long is the mortgage?
  • Are you significantly extending the mortgage time period for a small monthly savings?
    • For instance, if you have paid down 7 years on a mortgage, will refinancing extend the mortgage back to a 30 year versus a 23-year mortgage?
  • Can you increase your monthly payment to reduce the mortgage time period?
    • For instance, if you have paid down 7 years on a mortgage, will you be able to refinance to a 20 or 15-year loan instead of a 30-year loan to decrease the mortgage time period?

I’m not a big fan of debt; however, I love to leverage debt to maximize outcomes.  Here are some options to best leverage a refinance.

• Using a cash out refinance to make repairs and renovations to your home
  • This is a great use of refinancing prior to Selling your current home in order to add market value and ensure a quicker sale.
  • If you love your current location but wish to improve your current home, this is a great way to afford renovations and enhance your current home to accommodate your family needs or wishes.
  • Using a cash out refinance as a bridge strategy
    • This is a great way to leverage a refinance by allowing you to pull money out of your current home in order to purchase your next home, move to your next home, renovate your new home and or your current home, and resale your current home. 
    • This is a great way to leverage a down payment on a new home and then allowing you to leverage your current home and change this home from a primary residence to an investment home. 
      • This is a wonderful way to step up and start planning for the future and passive income.  Especially, if your current home will rent and provide you with positive cash flow.  Let your tenant pay for your home and in the future provide you with years of cash flow, return, and property value appreciation.
      • Using a cash out refinance to purchase investment property.
        • Leveraging the equity in your home to provide you with an income producing and appreciating property is a good thing.  Allowing for another party, your tenant, to reduce your debt and grow your wealth is the best form of leverage!
        • YOUR HOME IS NOT AN ATM MACHINE!!             
          • If you chose to refinance, make sure there is a plan and a benefit.  You need to earn your money or work for it in some way, by investing, renovating, or changing your living situation and location. 
          • The NO PAIN NO GAIN PHILOSOPHY
            • If there is no sacrifice or “pain” in the process, you should not gain from the process.  If you refinance, it should be for a good reason, to improve your home, the pain coming from living through a renovation.  Purchasing a new home and moving, versus just pulling out cash, the pain is in the moving to another location…etc!

While I’m a well-established and recognized Realtor, I got my start in the banking and financial world as a Financial Specialist for a large bank.  I spent many hours working with my clients to restructure and reorganize their debt and budgets.  I have an uncanny knack to help people save and grow money.  Feel free to reach out to me to discuss your options and opportunities!