Single Banner
Home » Property Management » Refinancing Your Residential Mortgage: Why and When Should You Do It?

Most people refinance their mortgages to make the financial burden of homeownership more bearable. However, while potentially rewarding, refinancing your home loan isn’t always a financially sound decision.

Since refinancing requires careful consideration, we’ve put together some advantages to guide you in determining if it’s really worth it. Plus, we’ve listed the factors that may indicate it’s not an ideal time to proceed with refinancing.

Why refinance your residential mortgage?

Before we dive into when you can refinance your loan, let’s go over the reasons why refinancing can be a good choice:

It may lower your monthly payments

One of the most common reasons why homeowners refinance their mortgages is to secure more favorable interest rates. This is particularly true if current loan terms are much lower than what you initially secured. By lowering your interest rates, you subsequently lower your monthly mortgage obligations.

As an added benefit, lowering the interest rate also enables you to allocate your money more effectively. For instance, you may redirect your newfound funds toward luxury home maintenance, which in turn, can boost your property’s overall value. Alternatively, you could use your cash to pay for professional services, streamlining property management and ensuring your home remains well-cared-for.

It lets you explore better loan terms

It lets you explore better loan terms

Want to make your loan terms more manageable? Consider refinancing your mortgage to spread out your expenses over an even more extended period of time.

For instance, if you’re currently on a 15-year mortgage with a high interest rate, transitioning to a longer-term mortgage with lower monthly payments could ease the financial strain.

This can be a smart move if you’re finding it difficult to meet the financial demands of home maintenance—an aspect of property management that you shouldn’t neglect at all costs.

It’s an opportunity to take out a fixed-rate loan

If you’re on an adjustable-rate mortgage or ARM, that means your interest rate is subject to fluctuations. These occur yearly or every few years after an initial fixed-rate period. Unfortunately, these loans can be risky because of their unpredictability.

If you’re worried about your interest rate rising to unmanageable levels, refinancing your mortgage can mitigate this concern. Opt for a fixed-rate loan—with this loan type, your interest rate remains consistent throughout the entire life of the mortgage.

It shortens the length of your home loan

Some homeowners choose to refinance their mortgages so they can own their properties sooner. While transitioning to a short-term loan may entail higher monthly payments, it also brings you closer to owning your home outright.

It lets you leverage your home’s equity

It lets you leverage your home’s equity

Refinancing offers the opportunity to tap into your home equity for cash. This is a strategic move that comes with many benefits, such as being able to access funds for home improvements, portfolio diversification, and more.

For instance, if your home holds a market value of $300,000 and your unpaid mortgage stands at $200,000, that means you have $100,000 in equity. From here, you can explore options such as a home equity line of credit (HELOC), which functions similarly to a credit card or opt for cash-out refinancing.

It Cancels Your PMI

If you have a Federal Housing Administration (FHA) mortgage, there’s a good chance it comes with private mortgage insurance or PMI. This is often included in conventional loans with a low down payment, serving to protect the lender if you default on your loan. Unfortunately, the presence of PMI means you’ll have to account for more expenses each month.

To cancel your PMI—and in turn, ease the financial strain—you can consider refinancing into a conventional loan. This type of loan only requires you to pay for PMI until you’ve hit the 20% home equity mark.

When can you refinance your home?

You can apply for refinancing at any point throughout the course of your loan, but it largely depends on your loan type. In most cases, you may refinance your loan as early as one month post-closing, but other lenders may establish a “seasoning” period. This is a specific amount of time you must wait before you’re eligible to refinance your mortgage.

Generally, conventional loans extend the option for rate-and-term refinancing at any time, while cash-out refinances become available after a six-month wait.

When shouldn’t you refinance your residential mortgage?

While refinancing your home can put you in a more financially favorable position, it isn’t always worth it. Here are some instances wherein financing your residential loan may not be the best move:

You’re planning on selling the property soon

You’re planning on selling the property soon

Make sure to stay long enough in the home to recoup your refinancing closing costs. If you really must move, converting your home into a rental property is a strategic alternative. In such a situation, hiring a property management company can streamline rental property ownership, allowing you to reap the rewards with minimal effort.

You’re close to paying off your loan in full

If you’re at the end of your loan, switching to a longer-term loan with a lower interest rate doesn’t make financial sense. You’ll ultimately pay more over the loan’s life.  Instead, consider sticking it out—or if you’re eager for lien-free homeownership, explore short-term loan options (however, do note that it will likely entail higher interest rates).

Refinancing isn’t aligned with your household’s financial goals

Refinancing isn’t free, with most lenders imposing a prepayment penalty of around 2% to 6% of your loan amount. If refinancing will only pull you farther away from your financial goals (e.g., real estate investing), yet you desperately need the funds, identify areas where you can lower expenses.

If property maintenance is a concern, a residential property management company can help craft cost-effective home maintenance plans. This ensures that essential tasks are completed while keeping costs to a minimum.

How residential property management companies can help

When refinancing your home, consider consulting a residential property management company. They can offer expert guidance on when it’s the right time to refinance, owing to their extensive understanding of the market, trends, interest rates, and more.

What’s more, residential property management companies can assist in preparing your home for refinancing. They can carry out property repairs and/or improvements, which can enhance its value during the appraisal process. This, in turn, can increase your chances of securing more favorable loan terms.

At Luxury Property Care, we’re prepared to be your partner in home management, providing sound advice across a vast range of essential areas. Call us at (561) 944 – 2992 or complete our contact form today to learn more about our services as your property management partner.

Outsourcing vs. In-House Property Maintenance: The Pros and Cons

30 Mar 2024

As a real estate investor, you’ve likely considered forming an in-house team to tackle essential tasks like repairs, maintenance, inspections,

Landlord’s Guide to Online Rent Collection Pros, Cons, and Best Practices

27 Mar 2024

Efficient rent collection is crucial to successful rental property management, with rent being the backbone of your business. Not only

Insider Strategies for More Property Management Success in 2024

23 Mar 2024

Each year offers landlords like yourself new opportunities to maximize returns on your investment properties. As we step into the