Saving Money Can Be a Pain in The @#$%! Refinance & Save Up to $3000 Annually.
CMS Mortgage Solutions Inc.
CMS Mortgage Solutions Inc.
Published on October 20, 2021

Saving Money Can Be a Pain in The @#$%! Refinance & Save Up to $3000 Annually.

Refinance Now!

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Saving money can be tough. If you're looking for ways to save money, you may have missed the most obvious place - your mortgage! While there are several reasons one may wish to refinance their mortgage, the key takeaway is that it can save you money.

Refinancing can be tricky to understand. We could go on and on about how it can reduce your monthly payment, lower your interest rate, or eliminate costly private mortgage interest payments (PMI). However, to paint you a complete picture, we'll go beyond this.

We know that refinancing can have both short and long-term effects, both good and bad. Our focus will largely be on four long-term benefits of doing so. This is because chasing short-term benefits can land you in a lot of trouble.

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To support our claims about the consequences of short-term thinking, we'll also highlight four reasons why short-term thinking is bad when it comes to refinancing.

4 Reasons to Refi Now!

While there are several good reasons to refinance your home, we believe there are four reasons that should convince you! These are:

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  • Add to long-term savings
  • Reduce credit card debt
  • Eliminate PMI
  • Pay off and FHA loan

Resources for Smart Buyers

If you're already confused by the terms used above, don't worry. We'll take you through each of the reasons and detail why they're good reasons to refinance. We will also look into the potential downsides of each.

  1. Add to Long-Term Savings

There are two main ways in which refinancing can help you meet your long-term saving targets:

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By lowering your interest rates, you can pay lower mortgage interest payments throughout the loan. Even if it means committing to a longer loan period, reduced monthly payments can allow you to invest the savings in a retirement fund today!

The first item is pretty much guaranteed. A lower interest rate will immediately result in lower monthly payments. Note that the closing costs for the mortgage are a part of your borrowing costs over the long run.

The second item carries a great deal more risk. This is because of several considerations. If you invest when you're young, the number of years that your investment has to compound is greater. This figure will ultimately be higher than the money you save by getting out of your mortgage payment earlier. However, investments can sometimes fail, so there's risk associated with them that isn't present with paying off your mortgage.

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This is why paying off the mortgage can seem like a much safer investment. At the end of the mortgage payments, you'll have an asset to your name! Furthermore, you can always opt for a cash-out refinance, reverse mortgage, or home-equity loan to access funding if need be.

However, time is everything when it comes to compound interest. By reducing your monthly payments and paying off your mortgage early, you lose a lot of years during which you could have contributed to your retirement fund.

You can always increase your retirement fund contributions once the mortgage is dealt with and you have a home to your name. However, you can't go back in time and grow your investments back when you still had all the time in the world.

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An important thing to recognize is that being equity rich isn't enough. Many people have a home but not enough cash for day to day expenses. Having healthy cash flow is fundamental to our lives.

  1. Reduce Credit Card Debt

You may have a lot of consumer debt that's chipping away at your finances. Interest on consumer debt via credit cards can affect your long-term savings. Refinancing to reduce the interest payments on this debt can be a great way to improve cash flow and facilitate long-term saving.

To be honest, refinancing can be a good or bad way to go about reducing consumer debt. Everything depends on you! If there is a larger pattern of poor spending being accelerated by consumer debt, then refinancing will only solve the problem for a while.

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Sooner or later, you'll find yourself back in debt. This time you won't have the safety net of refinancing either. Paying off consumer debt using refinancing can be a good strategy but one that ultimately relies on great self-discipline and healthy savings for emergencies. Without these, you are likely to be worse off than when you first started.

It's also possible that you won't even qualify for a refinance if your credit score isn't good or if your debt-to-income ratio isn't well balanced. If this is the case, even if you qualify, you won't get a very good rate, which was the whole point of refinancing.

It's best not to assume anything. You should always look around, do your research and consult a few experts before applying for a mortgage with bad credit.

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It's also important to appreciate the bigger picture. Things that appear excellent in the short term often don't translate into long-term success. Refinancing to lower your interest payments over a longer period may mean you're paying a higher sum overall. You should always devise a strategy based on what works best for your situation!

  1. Eliminate PMI

Private mortgage payments are a requirement for most loans. It can feel like an unnecessary burden on your finances at times. Luckily, once you've built up at least 20% equity in your home, you can have PMI on your home cancelled. You need to meet a few requirements to qualify for this:

  • Reliable payments
  • Current on Mortgage at the time of your request
  • No liens against the home
  • Home value hasn't decreased

Furthermore, as long as you're current on your mortgage, the lender has to cancel your PMI once you have 22% equity in your home.

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Refinancing can be a way to eliminate PMI even sooner. This isn't always the best way to go through. This is because:

  • You'll have to pay closing costs on refinancing, which may make it more costly than it's worth.
  • The Break-even period is not short enough.
  • Lender cancelling may be much cheaper, and you may be close to 20% equity.
  • The home value may have been appreciated since you took out the mortgage, meaning you may be closer to 20% equity than you realize.

In case of the final point, it would take only a few hundred dollars to have your home value appraised. This would be a whole lot cheaper than refinancing your home.

  1. Pay of an FHA loan

An FHA loan can be a great financing tool when you need it, but you're likely committing to at least 11 years of payments. This figure can be longer depending on your down payment. Unlike other options, you can't cancel FHA mortgage insurance once you've built up 20% equity, so your only option may be to refinance.

Determine if you should refinance! Follow these simple steps:

  • First, verify your credit score.
  • Calculate your revised interest rate.
  • Calculate closing costs.
  • Utilize a mortgage amortization calculator - this will help you determine the long and short-term effects of refinancing.
  • Determine the break-even point for refinancing
  • Receive quotes from at least three lenders
  • Use a refinance calculator

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CMS Mortgage Solutions Inc.
CMS Mortgage Solutions Inc. Virginia Beach
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(757) 558-2603