Your Mortgage is a Tool, Not a Toll
Wealthy people use their mortgage as a tool instead of as a crutch. When it comes to borrowing money, your mortgage is not only one of the cheapest debts your can have, but it’s also one of the most secure. When used responsibly, a mortgage can help provide liquidity, build credit, and ultimately amass more wealth.
To make the most of your mortgage you should know your goals, know your options, and revisit your agreement as circumstances change. This means being open to refinancing, or replacing your existing loan with one that better suits your needs.
Top 4 Reasons People Refinance
1. Save Money on Mortgage Payments
The top reason people talk to us about refinancing is to get a better interest rate or loan terms. Refinancing can reduce your monthly payments, improve your cashflow, and save you a lot of money over the lifespan of your term.
When you first applied for your home loan, your financial circumstances affected the interest rates and programs available to you. However, if you’ve carried that mortgage for some time, you may be qualified for better terms without even knowing it.
In addition to your personal circumstances, other economic factors may have also changed in your favor. For example, mortgage rates are heavily correlated with the performance of the U.S. Treasury yield, which is currently at historic lows. So, even if your personal finances remained largely unchanged, market conditions may have delivered some big opportunities.
2. Invest in More Real Estate
Real estate investment is one of the most popular ways of building wealth. However, securing money for a second down payment may be difficult. Nevertheless, if your goal is to increase your net worth through real estate, you may be able to use the equity in your house to help.
Your home equity increases in two ways: 1) as you decrease your principal by making your monthly payments, and 2) as your property value increases with the markets. If you’ve been making your mortgage payments for a few years, you may have gained enough equity in your home to help with a second down payment.
To calculate your equity, subtract the amount you owe from the current value of the house. A home appraisal will be issued by your lender to confirm the value of your home.
(current home value) – (amount owed) = home equity
3. Renovate Their Home
When your lifestyle outpaces your home, it may be time to renovate. Whether it means new cabinetry or an extension on the back, renovating can help you fall in love with your home again, while maintaining the community you’ve grown to depend on.
In addition to meeting your needs, renovating is a great way to maintain the value of one of your largest and most important assets. However, if you’re not sure about your next steps and want to explore your options, don’t hesitate to reach out. Our mortgage consultants would be happy to run your scenario to help you evaluate where you stand.
4. Consolidate High-Interest Debt
If you closed your mortgage in the last 5–6 years, chances are your interest rate is in the neighborhood of 5% or lower. Not only is this historically low, but it’s even cheaper once you take into account the fact that your interest payments are tax deductible. In comparison, your credit card debt can carry an interest rate that is as many as five times higher.
If you have personal debt, student loans, or car payments, consider consolidating everything into your low-interest mortgage. Not only could this provide administrative relief and save you time, it could save you thousands in the long run.