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3 Reasons It Makes Sense to Actually Increase Your Interest Rate for a Refinance.

Updated: May 18, 2018

With a raising interest rate environment it may make sense to refinance even if it means a higher rate under these circumstances.



Lowering your rate is so 2017. This year, the borrower will be looking at a different list of loan options than any year in the prior 7. For starters, with rates at a 7 year high, fewer borrowers will qualify to "lower their rate" during refinance transactions. However many of the borrowers still interested in refinancing are pursuing more than just the interest rate. Borrowers are flocking to secure some of their homes equity in cash, paying debts in preparation of the economic storm many predict could be on the horizon, or getting out of adjustable rates that may prove difficult to refinance out of down the road.


We broke down TOP 3 reasons we have seen where it actually makes sense for a borrower to increase their current interest rate. Since no two situations are exactly the same we recommend you always speak with one of our Loan Experts to allow us to understand your unique situation to see if you are a candidate. For some their may be other options such as using current savings, selling their home, a home equity loan or borrowing from family.


Reason #3. You Have Lots Of Unsecured Debt At High Rates.

Lets face it, no one likes having and managing debt, especially credit cards. Some homeowners this spring and summer have been faced with weighing, increasing their current interest rate on their mortgage, which may have been locked in 2-4 years ago, with swapping it up for a slightly higher rate to consolidate debt. The last 10 years the average debt amount per household has increased considerably after falling to lows just after the recession. It the case where a borrowers payments become much more affordable, manageable and works towards a better credit score, increasing your interest rate may just make sense. The truth is no one wakes up and remember their interest rate, we all know what bills are due and exactly how much money is in our account to pay them. More borrowers are focused on life style than water cooler talk about rates. Again, the rate increase always needs to make sense. We have seen rates increase during debt consolidation refinances as much as 1% and still save the borrower hundreds of dollars by consolidating high interest credit cards.


Reason #2. You Need To Secure Some of Your Homes Equity in Cash.

Refinancing to cash out may seem like an irresponsible thing to do. During the subprime days homeowners stripped their equity as fast as it was built to buy boats, cars, jewelry, and even take fancy vacations. This was one of the hardest lessons from the last housing crisis. However we also learned that "cash was king". Homeowners that had money in savings and access to their equity could far easier weather the storm than someone who had all their equity tied up watching it evaporate for nearly 6 years. If you are not in as position to have a comfortable savings built compared to your "homes equity" consider refinancing to have cash as a back up. Once again, if home values began to decrease as they would in any housing cycle it would be much harder to refinance and obtain cash further down the road. With rates still attractive and values holding steady this is a ripe time to harvest some of your homes equity for rainy day. Remember the housing crisis from 2007? We do, and want to make sure homeowners have all the facts about their options.


Reason #1. You Are In An Adjustable Rate or ARM LOAN.

Believe it or not some companies as of this year were still peddling adjustable rate mortgages. These were still offered in 3, 5 and 7 year fixed period with the ability for the rate to adjust several times per year after with a cap sometimes double the start rate. These were the types of loans that caused many to lose their home during the housing crisis of 2007. As values were going up and it seemed the market could only go higher many forgot about the consequences of carrying these loans. These are considered "a ticking time bomb" in some way because many homeowners have not even considered what their payments are when the loan begins to adjust. With plans to refinance before it adjusts, unfortunately some homeowners who took the risk of an ARM will stand the chance to lose their home if and when the payment is no longer affordable. As lenders tighten lending standards and homes values possibly take a turn refinancing out of an Adjustable Rate can become very difficult. This may represent one of the last opportunities to swap your risky Adjustable Rate for an attractive Fixed Rate Loan even if it means your rate actually going up. Many homeowners are surprised to know that their payment can stay very similar even switching out of the adjustable rate. Unfortunately many homeowners took on these loans not realizing the small spread between the fixed rate and ARM. Don't want until its too late. Adjustable rates are not something to take lightly if you are not financially prepared for each rate and payment change.


Not sure if refinancing and actually increasing your rate to cash out, consolidate debt or get out of an ARM makes sense? Call us and one of our Loan Experts will guide you through the process while understanding your unique situation to help determine this.


Ladera Ranch Home Loans 1-877-353-9527


 
 
 

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