Low rates are not the only motive for refinancing a home loan nowadays. The following are some good reasons to consider a new loan.
Refi for a lower rate: The No. 1 reason to refi is to get a lower mortgage rate. Despite sinking rates, a lot of people haven't refinanced.
Many homeowners would like to refinance but can't because they have little or no equity due to falling home values. Jim Sahnger, mortgage consultant for FBC Mortgage in Jupiter, said too many of his clients can't refi for this reason.
"But there are people who can, and some people who get so into whatever they're doing that they don't pay attention to the news and don't pay attention to where rates are at," Sahnger said.
Convert an ARM: Stability-hungry borrowers are ditching adjustable-rate mortgages and refinancing into fixed-rate loans. "Everybody's frightened about inflation, so if they have an adjustable loan, that's the No. 1 reason they're getting out of them," said Jeff Lazerson, president of Mortgage Grader, a lender based in Laguna Niguel, Calif.
Get a mortgage on a paid-off house: This isn't technically a refi, but it's close. Mortgage-free homeowners sometimes get mortgages to put cash in their pockets. They could also take out a mortgage on a paid-off property to start a business or for other reasons.
Cash out to consolidate debt: When house prices were rising by 10 percent or more a year, millions of borrowers got cash-out refinances. They refinanced for more than they owed, got cash, and spent or invested it.
The cash-out refi craze ended when the housing bust began. But there are still a few cash-out refis.
Cash out to buy other property: "One thing that's a trend now is that people are taking money out to purchase other properties," Lazerson said. Often, it's to buy investment properties.
Refinancing to buy property can bring up unexpected tax and mortgage underwriting issues. A lot depends upon how the refinanced house and the new property will be used.
Consolidate two mortgages: Some homeowners want to combine their first mortgage with the home equity line of credit. "I'm seeing a lot of people, even if their rate on their home equity line of credit is 3 percent, refinancing to get rid of them," said Michael Becker, a mortgage banker in Lutherville, Md. Why get rid of a loan with such a low rate? "Because they're worried if five years from now, what if that rate jumps up to 12 (percent), 11 (percent), 13 percent?" he said.
Address family matters: Divorces often lead to refis as a means of removing the absent former spouse from the note.