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Worried about Holiday Debt or Income Taxes? A Refinance Could Help!

The holidays can be stressful, especially if you’re going into debt for gifts, food and drinks for a large family gathering you can finally have, or maybe that holiday trip or another activity your family has made a tradition. If your credit cards are almost maxed out, your monthly payments are already a worry. If that isn’t enough, income taxes are looming at the beginning of the New Year.


Who wouldn’t want to begin the New Year with less financial stress! With mortgage interest rates at historic lows, refinancing your mortgage now might be what allows you to do just that. A cash out refi allows you take equity out of your home in cash to use however you like, and could help with more urgent expenses. A regular refi can have more financial benefits over time.


Your personal circumstances could affect whether or not now is a good time to refinance your home mortgage, but it’s super-easy to find out. The loan officers at Citywide Home Loans use software that, with some basic information from you, can calculate in just 15-20 minutes a cost analysis on the current interest rate and fees and how long you will have to stay in your home to make a refinance worthwhile financially. They can look up your current loan, the amortization schedule and payoff time, compare it with a new loan and tell you if you can lower your monthly payment, even if you withdraw cash from your home equity. Conducting this analysis is free of charge, and you are under no obligation to refinance with Citywide.


A refinance could help you:

  • lower your monthly payments,
  • shorten the term of your loan and pay it off faster, with less money going toward interest,
  • consolidate holiday or other debt and/or pay income taxes,
  • convert from an adjustable-rate mortgage (ARM)to a fixed-rate mortgage, or vice versa.


Generally, if refinancing will save you money, help you build equity and pay off your mortgage faster, it’s a good decision. And with rates this low, even people who have relatively new mortgages may be able to benefit from refinancing.


How long does it take to complete the mortgage refinance process?

The time it takes to refinance depends on your lender, as well as how long it takes to complete inspections, appraisals, credit checks and other requirements. Even though the internet and technology have simplified the process, you should probably count on it taking at least 30 days. If you are going to take cash out of your equity, you won’t have it before this Christmas, but you could use it to consolidate holiday bills and taxes not too long after the first of the year.


Should I refinance to take equity out of my home?

Depending on the particulars of your refinance, you may be able to lower your monthly payments enough to help pay your bills all year long. However, homeowners often access the equity in their homes to help pay for large purchases or to cover major expenses such as the costs of home remodeling or a child’s education. A cash out refi can be smart because remodeling may add value to the home or because the interest rate on the mortgage loan is less than the rate on money borrowed from another source.


Another reason to access equity can be a serious financial emergency, such as losing your job. This can be especially stressful and depressing during the holidays when expenses and family expectations go up. Replacing high-interest credit card debt with a low-interest mortgage may be a good idea. But you should carefully research all your options for raising funds before you take this step.


If you do a cash out refinance, you may be charged a higher interest rate on the new mortgage than for a rate-and-term refinance. Another consideration is that private mortgage insurance is generally required when the homeowner has less than 20 percent equity in the home. A savvy homeowner is always looking for ways to reduce debt, build equity, save money, and eliminate their mortgage payment. If taking cash out of your equity when you refinance does not help to achieve those goals, then this is another good time to consult with a Citywide professional.


When is it financially sound to convert from an ARM to a fixed-rate mortgage, or vice versa?


[1] Savings, if any, vary based on consumer credit profile, interest rate availability, and a variety of factors. Applicant subject to credit and underwriting approval.

ARMs (Adjustable Rate Mortgages) often offer lower initial rates than fixed-rate mortgages. However, periodic rate adjustments can result in increases that are higher than the rate available through a fixed-rate mortgage. When this occurs, converting to a fixed-rate mortgage could result in a lower interest rate and can eliminate concern over future interest rate hikes.


When mortgage interest rates have a better chance of rising, this is not a wise strategy. Converting from a fixed-rate loan to an ARM can be a sound financial strategy, if interest rates are falling and you don’t plan to stay in your home for more than a few years.


How long does it take to recoup the costs of refinancing?

The interest rate is just one consideration that determines whether refinancing is worth it. Expect closing costs to total 2 to 5 percent of the principal amount of the loan. As with an original mortgage, refinancing requires an appraisal, title search, and application fees. Many lenders let you roll the closing costs into your principal balance and finance them as part of the loan. To determine an approximate break-even point, divide the total closing costs by the amount you will save each month.


When refinancing a mortgage, you’ll also have “pre-paids” or “escrows,” which are the money you are required put aside upfront to account for future property tax and homeowner’s insurance liabilities. Once your old loan is paid off, your existing lender will send you a refund of the balance in your old escrow account approximately 30 days after closing. This may impact your payment schedule. Talk to your Loan Officer about what this means for you.


The Bottom Line

Refinancing can be a great financial move if it reduces your mortgage payment, shortens the term of your loan, or helps you build equity more quickly. When used carefully, it can also be a valuable tool for bringing debt under control. Before you refinance, take a careful look at your financial situation, consider all of the information above and seek advice from a mortgage loan professional. To start the process, go to our website, https://citywidetemdev.wpengine.com/