5 Reasons to Refinance in 2014

For many people, New Year’s resolutions often lose their motivational power by the middle of January. But unlike a commitment to save more or eat less, a resolution to refinance can be accomplished within a few weeks and you can reap the benefits for the rest of the year and beyond.

 The New Year can be a good time to schedule a thorough review of your finances. Take a look at your budget and your investment portfolio and look at recent statements for all of your debts including your mortgage loan and, if you have one, a home-equity loan or line of credit. Once you’re armed with knowledge of your current mortgage balance, your current mortgage rate and what’s left of your loan term, you can make an educated decision about whether you can benefit from a refinance. Here are five reasons to refinance:

 1. Lower your interest rate. Compare mortgage rates and see how yours compares to rates being offered today. Even a slightly lower interest rate could save you money on interest payments in the long term and may be just enough lower that you could afford to make the switch to a shorter loan term.

2. Shorten your loan term. If you’ve been paying down your principal for several years and perhaps have even made some extra payments to reduce the balance faster, check out what your loan payments would be if you refinance into a 15- or 10-year loan. Depending on the balance of your loan and the interest rate, your payments could be the same as what you’re paying now or just a little higher. By shortening your loan term, however, you can potentially save thousands in interest payments as well as become mortgage-free faster.

 3. Combine your current mortgage loans. If your home-equity loan or line of credit has a higher interest rate than your current first mortgage, look into the possibility of refinancing both loans to see if this can reduce your monthly payments overall. In addition, some home-equity lines of credit have a reset date when you stop paying interest only and must begin to repay the principal. You may want to refinance before your minimum payments jump.

4. Take cash out. If you’ve got other high-interest debt such as credit-card debt and your home has increased in value, this may be the time to consider refinancing to pay off your credit cards. Be careful that you have the discipline to avoid going deeper into credit-card debt and that you can comfortably afford your new mortgage payment.

5. Reduce your loan balance. You may want to do a “cash-in” refinance and pay down your mortgage balance to eliminate private mortgage insurance payments or to qualify for a lower mortgage rate. Some borrowers use the combination of a refinance and prepaying their loan to become debt-free faster.

While mortgage rates are expected to rise a little this year, they’re still extremely low by historical standards. Homeowners should evaluate the benefits of refinancing before rates rise higher.

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