What are your New Years’ resolutions? Have you thought about home improvements? Maybe finally adding on that mother-in-law suite above the garage, installing a jacuzzi tub, or changing out those drab kitchen cabinets? How about going to school? Going debt-free? The new year is a great time for renovating and an even better time to get financing to do so! In this blog, we’ll explore your options, breaking them down to the basics.
Why Refinance?
Over time, the value of your home goes up as you make improvements and the land value rises. With a cash-out refinance, you can use your equity to pay off debts – especially those with high interest. Cash can be made by refinancing your mortgage for a higher amount and utilizing the difference, minus any closing costs, giving you the maximum amount of cash in hand possible!
This choice would mean getting a new loan with different terms, which could make your mortgage last longer, but the idea is that with a lower rate, it pays for itself in the long run.
The ultimate idea is that a cash-out refinance lump sum lets you choose how to spend your money.
Why Refinance an Adjustable-Rate Mortgage (ARM) to a Fixed Rate?
Refinancing an adjustable-rate mortgage into a fixed-rate mortgage locks in your interest rate, turning it into a, you guessed it, fixed-rate mortgage. With a fixed-rate mortgage, your loan's interest rate will never change. If you think the market's interest rate will rise in the next 5 to 25 years, or however long it will take you to pay off your mortgage, locking in the lower rate now could save you money in the long run, freeing up the money you already were budgeting for other needs.
Refinancing a VA Loan
Good news! Because VA loans are not based on the open appraisal market, they can be processed more quickly. They are also ordered through the VA, which can save time compared to a regular loan.
When you refinance a VA loan, it turns into a VA IRRRL, a VA Interest Rate Reduction Refinance loan. The VA IRRRL lets Veterans refinance into a new VA loan with a lower interest rate or switch from an adjustable-rate VA loan to a fixed-rate VA loan. It's also called a "VA Streamline" because there's usually less paperwork to fill out, which speeds up the process. Again, VA loans and refinances are generally faster, plus there are few out-of-pocket costs and generally no appraisal involved.
VA Cash-Out Refinances
Many Veterans use the extra money from a cash-out refinance to pay off debt, fix up their homes, send their kids to college, or even invest. Homeowners often choose the VA cash-out refinance option because it gives them more time to pay back the loan.
Concerned About Interest Rates?
Your mortgage payment could go down if you refinance while rates haven’t climbed. If you change your loan type, term, principal and interest payments, or refinance enough to cut out PMI (private mortgage insurance), you could save a lot of money. Also, if you refinance, you might be able to cut the length of your mortgage or pay it off faster if your overall financial situation has improved since closing your initial mortgage. What a way to celebrate your success!
Debt Consolidation
Got high-interest credit cards? Need to buy expensive appliances or pay for a pricey upgrade? A refinance is a great option to pay down these high APR sources of financial discomfort.
For Making Renovations
When it comes to using the money from a cash-out refinance, home improvements are often the top choice1. Home improvements can make your home more useful and raise its value all in one go, making it the ultimate one-two punch when it comes to investments. Home improvements also give you a chance to make your home more energy efficient by adding more insulation or updating energy-efficient features like modern insulation, saving money in the long run. Additionally, by adding space, security, and curb appeal, you could not only raise the value of your home and make it look better, but it could also make it more comfortable. The question then becomes; why not make improvements?
Improve Retirement Savings
It's never too late to start saving. With the extra money you get from refinancing, you can do that. One idea is to use some or all of the extra money you might be able to save each month to put more pre-tax money into your 401(k), at least the amount that your employer will match. That would add to the money you have saved. "Catch-up" contributions can also be made to a 401K or IRA by people who are 50 or older. When you refinance, you can make thousands of dollars that can help you save for retirement, putting that money safely away for when you need it.
It's Time to Act!
In conclusion, many people use "refi" money to pay off high-interest debt, make improvements to their homes, or save for retirement, that is true, but the true options are limitless – and you are the one who best understands where you could best use an investment.
It’s time to jump while payments are stable! Give Newrez a call today.
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