Which refinancing option is best for you?

There are not quite as many loan programs as there are borrowers, but sometimes it seems that way.  Working with you to qualify you for the best loan program to fit your needs is the basis of the Home Financial Planning philosphy I have adopted.  But there are some general considerations you can have in mind in advance.

Are you refinancing primarily to lower your rate and monthly payments?  Then your best option might be a low fixed-rate loan.  Maybe you have a fixed-rate mortgage now with a higher rate, or maybe you have an ARM -- Adjustable Rate Mortgage -- where the interest rate varies.  Whatever the scenario, there is most likely an opportunity to maximize your borrowing position.

Is your goal to cash out some of the equity in your home?  Maybe you want to pay for home improvements, pay your child's college tuition bill, invest in other arenas, whatever.  If so, you will want to qualify for a loan for more than the balance remaining on your current mortgage.  If you've had your current mortgage for a number of years and/or have a mortgage whose interest rate is higher, you most likely will be able to do this without increasing your monthly payment.

You want to cash out some equity to consolidate other debt?   Always a strong play.  If you have the equity in your home to make it work, paying off other debt with higher interest rates than the interest rate on your mortgage -- for example, credit cards, home equity loans, car loans, some student loans -- means you can save possibly hundreds of dollars a month.  Not to mention, the interest now becomes tax deductible.

Do you want to build up home equity more aggressively, and pay off your mortgage sooner?  Consider refinancing with a shorter-term loan, such as a 15-year mortgage.  Your payments will be higher than with a longer-term loan, but in exchange, you will pay substantially less interest and will build up equity faster. If you have had your current 30-year mortgage for a number of years and the loan balance is relatively low, you may be able to do this without increasing your monthly payment -- chances are you may even be able to save.  For example, let's say years ago you took out a $150,000 30-year mortgage at eight percent.  Your payment is about $1,100, exclusive of taxes, insurance, etc....  If your balance today is down to $130,000, you might take out a 15-year mortgage at six percent and have an almost identical monthly payment.  This is a great option for people whose main goal is not to save money on their monthly payment but rather want to build up equity and pay off their home faster.