Mortgage Minute

by Michael Scharfe

With rates being as high as they are right now, refinancing may not be at the forefront of your mind unless you are looking to the future, with hopes that they drop at some point. This, I feel, begs the question of when would be a good time to refinance?

To answer that question, you first need to ask yourself what the purpose of the refinance is. Typically, the two main reasons for refinancing are to get cash out on the property or to change the rate/term of your loan.

With a cash out refinance, you would use the equity (difference between the value of your home and what you owe on it) in your home to do several things: consolidate debt, do home improvements, or purchase other property. Think of a cash-out refinance as turning your home equity into cash.

The second type of refinance is the rate/term refinance. When doing this type of refinance, you are typically looking to improve the interest rate and/or term that you currently have. This could be by way of refinancing to change from an ARM (adjustable-rate mortgage) to a fixed rate mortgage, shortening the term of your loan (i.e., from a 30-year to a 15-year mortgage), or lowering your interest rate.

As you can see, the right time to refinance depends on what the refinance is needed for.

Please talk with your lender for details regarding your refinancing needs as well as the benefits and costs of refinancing. Next month, I will explain in more detail the rate/term refinance and weigh the costs and benefits of doing this.

Michael Scharfe has been a lender at First Security Bank for 10 years. Reach him at [email protected].