5 REASONS TO REFINANCE

1) Renovating To Upgrade A Home 

When you look at the market that we're in today, it's challenging to find the home that checks all the boxes and people are realizing that. You can add that extra closet in the master bedroom or expand the kitchen. 

All these things can be done through a renovation. 

It's a different process from buying a move-in-ready home. There are challenges but accessing equity, especially in a market where you've seen a lot of appreciation, is a great tool. 

How Does This Look In Today's Market?

There's a shortage of inventory in the marketplace. People are deciding to stay home to renovate and build up some value. $100,000 today on a refinance could be as low as $350 a month. 

What could you do with $100,000? 

Owners of single-family detached homes adding a basement or rental suite into their homes in preparation to eventually upsize or sell. Another example is building a garage with an additional living suite. With the cost of construction being high, the cost of money is low right now which creates opportunity. In a market where homes are staying on the market for 60-90 days, upgrading your home could help sell your home. 

Another reason to renovate is buying a home to add a few key items and then sell it for profit.

2) Reducing Your Rate

When the cost of borrowing is 2.5% or less for conventional mortgages or all lending being 1-3% lower than the last few years, it makes sense to look at reducing your rates.

Refinance To Consolidate Your Debts

We mentioned the word consolidation. We talked about what people forget about all day long which is the credit cards, personal loans, and their unsecured lines of credit. People look at those and they see the minimum payment. The minimum payment comes out automatically causing it to be out of sight out of mind. You're only paying interest and it's a very minimal piece of what the actual balance is.

A 19% interest rate on a credit card or a 7-8% interest rate on a line of credit adds up quickly. To be able to drop those rates and consolidate those debts into a mortgage is incredible when you look at a cost scenario. We're talking five digits in most cases of savings in a short time. 

It's easy to let that debt sit and pay off the minimum balance but people don't pay any attention to the interest paid. You have to train yourself to think differently and come up with a strategy to deal with it for future considerations.

Who Can Refinance?

Anyone who has at least 20% equity in their current home can refinance. Across the board, we're seeing 15-50% increases in property value in a few years. This means a home bought last year for $500,000 could be worth $700,000 today. This could be the case even if you bought for 5% down. You probably have enough equity built that you could pull money out to take advantage of refinancing. One of the biggest things that I see is people are afraid to ask about how do I take the money out? If you're wondering about this, ask the question. 

3) Increase Your Cash Flow 

Look at a car loan as an example:

• A $70,000 Ford pickup truck could cost a client up to $1,300 a month at a 6-7% interest rate.
• When you take that $70,000 in debt and you throw it back into the mortgage at 1.30%, we're seeing that monthly payment come down dramatically.
• The argument always is, "It's amortized over 30 years, this is going to take me way longer to pay off." Yes, that is your minimum payment threshold and that is true. To increase the cash flow base at that interest rate doesn't mean you have to pay it off over that amount of time. You can still attack the payment in the same size payment that you had previously. All of that additional money would go towards the principal. The amount of savings that you see on interest could be up to $20,000 on a loan of that example.

As an investor or someone who's looking to buy more than one piece of real estate, your cash flow is extremely important. 

4) Refinancing For Investment

One of the things that you could do is take money out and refinance to buy a second property. When we talk about buying a second property, we're taking the equity out of your home and using that for the downpayment on the next home. In many circumstances, it can cover 100% of that downpayment when financing a second property. It's very possible and we do it all the time.

Your Mortgage Qualification

Qualification is challenging with stress tests and everything that we're dealing with. Finding ways to increase cash flow could just be as easy as resetting your amortization.

If you're currently on track to pay your mortgage off in 17 years, that payment is hurting you as much as you can pay the mortgage off in that time. It's that minimum payment that's coming up in your credit bureau. That's what we're debt servicing for. and that is now restricting you from potentially buying the next investment property. Resetting the amortization to bring your minimum payment down to a 30-year is going to make a huge impact and that small change will allow you to buy that next property. There's no limitation on resetting your amortization. 

5) Pulling Out Equity

Another good reason to refinance is for those people that are looking to buy that vacation home. People who talked about a vacation home for an Airbnb, they're doing it for themselves. We get a lot of people who wait on buying that big dream home because they think they need to save up all the funds to do that. You can refinance to take that equity out to buy the vacation home just like you would any other property.

There's money is sitting in the equity of your home and you're not utilizing it. If you can put that to work for you, you're going to see your wealth grow over a short period. 

What Is Your Story?

These are just the key reasons why refinancing makes sense today. Commonly we can find another lender who may reconsider refinancing you again. You could have bought your home last year or you could have bought your home five years ago. It's all about the story. That's what we do when we're doing a refinance. 

How are we building out your story to do a refinance?

What's your situation? 

Early Renewals

A lot of people don't think that they can do an early renewal. They'll keep paying to sign a very high interest rate, waiting until they get to the maturity date.

There are a lot of strategies that you can do an early renewal. There are ways to potentially have no penalty, even at an earlier point in your trajectory to getting to maturity. It still makes sense to move forward due to potentially thousand's of dollars in interest savings. You may not be eligible for an early renewal, but you must investigate it and it's something that could save you a lot of money.

One of the biggest mistakes we commonly see is people waiting until the last minute for their bank to help out. 

Real-Life Scenario

We did a refinance for one of our clients a few weeks ago.

• We started the process 12 months out within the nine month period.
• Their pre-payment penalty got knocked down to 3 months' worth of interest on a fixed-rate mortgage.
• It made sense to refinance within that nine months early not only to lock in their new mortgage rate but also to pay off that nine months' worth of interest they would have paid.
• In nine months they saved money plus they got started with a lower payment.

If you're 12 months out, you can have a conversation. Typically if you're within 12 months you need to be talking to us about that especially in this type of interest rate environment.

If you have $300,000 of equity and you're waiting until the maturity date to pull it out, a lender will want to know why do you need the money. 

What are you using this equity for?

Having a conversation 12 months prior will allow you to start putting the puzzle pieces together and building a plan. When you get there and need the equity, it isn't going to be sitting in your account collecting interest, you will have a plan to deploy it.

If you're looking to do a renovation, if you're looking to reduce the rate on your credit cards or lines of credit, save hundreds of dollars every month, buy your investment property with your existing home, or renew your mortgage early, you know where you got to get started. Reach out to the team here at Thrive Mortgage Co. We can set up a 15-minute consultation and we'll figure out if it makes sense for you. We'll get you on your way to saving some cash and making sure to take advantage of this interest rate environment.

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