With mortgage interests at all-time lows and home prices continuing to rise at a nice, steady rate, refinancing is a hot topic. So let’s look at why most people choose to refinance.
A recent study of homeowners who have refinanced their mortgages shed some fascinating results:
- 78% of those who have refinanced in the past did it for “Life Cycle Factors”.
- 22% refinanced in order to take advantage of low-interest rates.
“Life Cycle Factors” are things such as getting married, helping children pay for their college education, or planning to stay in a home longer than originally anticipated.
What does this mean? Well, a couple of things. Homeowners think they want to refinance for one reason (lower rates; lower payments), but in reality, they do it for other reasons.
Another key take away from this study is that, whether they know it or not, homeowners are utilizing their house and home equity strategically as part of their overall financial plan.
Looking ahead, homeowners who say they intend to refinance in the future:
- 50% say they intend to refinance to better manage risk. This means they are stressed about their ability to make their debt payments, or have tried refinancing in the past but have been unsuccessful, and a refinance can help them until their financial situation to gets better.
- Only 22% claim to plan on refinancing because they think it has gotten easier to get a new mortgage after the recent tightening of lending institutions.
How you manage the financing on your house, over time, impacts virtually every other aspect of your financial life. For most of us, the mortgage payment is the biggest monthly obligation on our budget. The mortgage itself typically represents the single largest amount of debt. Our house, for most of us, is the largest asset we own…and if managed properly, a key to achieving our financial goals.
Remember, refinancing just to lower your interest rate is not what’s most important. Ask yourself, “What will lowering my rate and payment do for me or allow me to do?” Save more money each month? Pay off consumer debt faster and easier? Save and pay cash for family vacations? Super-charge my retirement savings? Be mortgage-free before retirement?
Secondly, for many homeowners, the increase in home values opens up new opportunities for getting rid of mortgage insurance, consolidating a 2nd mortgage, or even shortening their mortgage.
If you haven’t already, I encourage you to take a few minutes to review your current mortgage. Contact your preferred mortgage partner, or reach out to me and my team for a complimentary review. You’ll either have peace-of-mind that you are in the best position possible already and can ignore all of the refinance solicitations, or you will find an opportunity to improve your financial future!