By Brandon Miller–
Thinking about refinancing your home loan? It could mean big savings on interest, lower monthly payments, or even the chance to cash out some home equity. But is it the right move for you? Let’s weigh the pros and cons and figure it out together.
The Bright Side: Why Refinancing Can Be Worth It
Lower Interest Rates and Payments: If your credit has improved or market rates are favorable, you might snag a better rate, saving you money and potentially shortening your loan term. Lowering your monthly payments can free up cash for other priorities like investing, paying down high-interest debt, or building an emergency fund.
Ditching PMI: Built up 20% equity in your home? Refinancing could help you say goodbye to costly private mortgage insurance (PMI). PMI is often required for borrowers who initially put down less than 20%.
Adjusting Loan Features: Whether you want a shorter term, a fixed-rate loan, or even to add or remove a co-borrower, refinancing can offer the flexibility you need. Refinancing could allow you to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage to lock in stable payments, especially if interest rates are rising.
Cash-Out Refinancing: Need funds for big expenses like paying off high-interest debt or funding college tuition? Cash-out refinancing lets you tap into your home equity—just make sure the math works in your favor. It can provide liquidity at a lower interest rate compared to personal loans or credit cards, helping you manage big expenses strategically.
Optimize Debt Management: Refinancing may allow you to consolidate debts or restructure your financial obligations. With a lower rate and streamlined payments, you may reduce financial stress.
Adjust for Life Changes: Make sure your mortgage aligns with your current lifestyle and goals. Refinancing can accommodate major life events, such as:
• adding or removing a co-borrower (e.g., after marriage or divorce);
• changing your financial needs (e.g., retiring and needing lower payments).
The Not-So-Bright Side: Why Refinancing Might Not Be for You
Closing Costs: Refinancing isn’t free. Expect to pay 2%–6% of the new loan amount in fees. If the savings don’t outweigh the upfront costs, it may not be worth it. How long will it take for savings to offset refinancing expenses?
Credit Score Dips: A hard inquiry on your credit and closing your old loan could temporarily lower your score. If you’re planning to apply for another loan soon, this might not be the right time.
Longer Loan Term: While smaller monthly payments sound great, extending your loan term could mean paying more interest over time.
More Debt: Cashing out equity can increase your debt-to-income ratio, making future borrowing harder.
When Refinancing Makes Sense
Refinancing might be a good idea if:
• your credit score has improved, and you qualify for significantly lower rates;
• you’ll save enough on interest to cover closing costs and come out ahead;
• you’re looking to ditch PMI, stabilize an adjustable-rate loan, or restructure your loan for a better fit.
When to Think Twice
Hold off on refinancing if:
• the interest rate savings are negligible after fees;
• you’re struggling to make payments—there may be better solutions, like a loan modification;
• you’ve just bought your home and aren’t eligible to refinance yet.
The Bottom Line
Refinancing isn’t a one-size-fits-all decision; it’s all about your unique financial picture. Take a close look at your potential savings, loan terms, and closing costs. And remember, improving your credit is always a smart move to open up better opportunities.
Want help figuring out if refinancing is right for you? Reach out to Brio. We’re here to guide you every step of the way!
The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always, please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
Brio Financial Group is a registered investment adviser. SEC Registration does not constitute an endorsement of Brio by the SEC nor does it indicate that Brio has attained a particular level of skill or ability Advisory services are only offered to clients or prospective clients where Brio Financial Group and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Brio Financial Group unless a client service agreement is in place.
Brandon Miller, CFP®, is a financial consultant at Brio Financial Group in San Francisco, specializing in helping LGBT individuals and families plan and achieve their financial goals. For more information: https://www.briofg.com/
Money Matters
Published on January 30, 2025
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