The very good reasons to refinance
When I wrote about the hidden cost of the additional years of mortgage payments, several people wrote in with very good reasons to refinance anyway. Today, let’s discuss those:
Cash flow: Paying less on mortgage every month gives you more money in your pocket for other spending. There is a value to money in your pocket. It may be needed for basic needs; it may be helpful in times of unemployment or underemployment. You can invest it. You can save it for a rainy day.
You will pay a higher proportion of interest to principal in your refinanced loan, but you will have money now for your life. Is that worth it to you? Why?
You will sell before you get to the end of the mortgage: For younger buyers who expect a trade-up or relocation in the future, this is true.
Most people do not stay in one home for 30 years. I generally advocate buying for the long term. I have a higher than typical number of clients who get to the end of their mortgage. Most of the people who have owned longer have enough equity to refinance now with little difficulty. They are also the ones that lose the most if they increase their loan term too much.
How long do you expect to stay in your home? If it is for less than ten years, how do you expect to get your equity out of your current home?
No matter what the housing economy does, you will be ahead with a lower interest rate:
If you believe the economy will see sustained housing cost deflation, the debt you are paying for your home is on an inflated price. Refinance now so you can at least have a low interest rate. Also, if you foresee sustained deflation, you should refinance now while your property will still appraise above your debt level.
If you believe the economy will see a return of home price increases, then locking into a low rate helps you hold your housing debt costs stable.
