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  • Writer's pictureManuel Andrade


Updated: Apr 10, 2019

The right answer is, it depends.

Pay it off as soon as you can!

Why people refinance home loans

There are a few reasons why homeowners refinance a mortgage; to lower payments by getting a lower interest rate, to get rid of mortgage insurance, to shorten the number of years to pay off the loan, to pull out some of the existing equity for several reasons, or a combination of all the above.

The most common type of refinancing our clients ask us to do is to cash out some equity and to lower their mortgage payment at the same time. Many homeowners have taken advantage of the low-interest rates that have prevailed over the past few years and have lowered their mortgage payments and some even have pulled cash from their equity to do some home improvements or to consolidate other debts they may have.

Get rid of mortgage insurance

Some others have mortgage insurance because they bought their home with less than 20% down payment and due to the appreciation of their home now their equity allows them to get rid of it. If you bought your home, say, about 4 years or more and you still have an FHA loan you are still paying mortgage insurance unnecessarily. Consider refinancing to a conventional loan to get rid of it.

Pay off your mortgage much sooner

Others have realized that if they have 20 years or more left to pay off their mortgage they can refinance to a 15-year loan to pay off their home a lot sooner and save thousands of dollars in the process. Paying off any existing mortgage on our homes should be a top priority if we are to achieve financial freedom.

Invest in another home

A few have refinanced to pull enough equity to buy another home, usually a better home or as it’s known, move up home. They then rent out their home and become real estate investors. When done properly, this is a great way to multiply the equity in a home. This is by far one of the best reasons to refinance.

All of these are justified reasons to refinance a mortgage!

Don't do this!

What is definitely NOT A GOOD IDEA, in my opinion, is to pull out cash of the equity just because it’s there and you want to use for a vacation, car, or some other item that will depreciate over time.

Another questionable reason to cash equity out of a home is to invest it in a business. Some people have done it successfully, others haven’t had such good luck. That one is for you to consider carefully and act accordingly.

Too good to be true...

Be very careful with the too good to be true offers that you get on the mail or telemarketers. Often times they advertise a very low interest rate compared to the quotes you may get from mortgage brokers or a local lender. This low rate is generally just a lure to get your business and in most cases, the true interest rate and cost of the loan aren’t disclosed until you are well into the refinance process.

Do your homework

Refinancing a home loan can be one of the best decisions you make to save thousands of dollars and years of mortgage payments.

My suggestion is to consider all the pros and cons of refinancing your mortgage and to Consult with your trusted mortgage advisor, tax advisor, and if you have one, a financial planner as well.

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