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September 19, 2014
postWith fewer and fewer underwater mortgages throughout Phoenix, more and more Arizona homeowners are in a stronger financial position to refinance. The main question is: Should they? Refinancing your loan can cost you more up front, but if you fall into any of these categories, you should talk to a Phoenix lender today about securing a lower rate.

1. You Need to Consolidate Debt

Flying into the Phoenix Sky Harbor, you’d think swimming pools in the Valley of the Sun are as common as cacti. The latest U.S. Census figures revealed that 42.8% of Phoenix homeowners have a pool—a staple of Arizona homes that’s usually financed through a second mortgage. Home equity loans are a smart way to pay for a swimming pool if you don’t have $25,000 lying around, but they come with a cost. Making two loan payments every month can become tiresome, and expensive, since second mortgages generally have higher rates. Refinancing your primary mortgage is a simple way to consolidate your debt, freeing you to make one payment, not two, ideally, at a lower interest rate.

2. You’ll Save Now and/or Over Time

Whenever you refinance your home, you have to pay closing costs. These will vary, but they tend to be a few thousand dollars. That’s a sizable amount, especially when you consider how long it takes to see the savings from a lower monthly mortgage payment. For example, if refinancing saves you $150 every month, it can take up to two years to recoup closing costs and have extra cash in hand.

For many people, this extra cost up front is worth it, since they know they’ll ultimately save more over the lifetime of the loan—or, at least, they think they will. In the first years of any loan, a majority of your monthly mortgage payment goes toward interest, with only a smaller portion paying off principle. That proportion shifts over the life of the loan, so by the end of a 30-year payment plan, nearly all of your monthly payment goes toward the actual amount. This means that if you extend your mortgage, resetting the 30-year loan, even at a lower rate, will increase the amount you’re putting toward interest.

If you’re refinancing to save money, you need to decide whether that means now, over time, or both. Extending the term of your mortgage can save you significantly each month, though you’ll likely be paying more in the end. On the flip-side, if you refinance to a 15-year loan, you can probably secure a much lower interest rate than the one you currently have, which means you’ll be building equity faster, even if you have to make higher monthly payments. Bankrate.com offers a calculator to determine how much you’d save by refinancing your home in Phoenix.

3. Your Current Loan Is Unmanageable

Though the total number of underwater mortgages in Phoenix has decreased significantly in the past few years, about one in five homeowners in the metro area still owe more than their home is worth. Many of them, too, are paying a mortgage rate higher than the current standard, which compounds the problem of their negative equity. Just making the monthly payments each month can be difficult, so refinancing is a smart choice for people with unmanageable loans.

The Home Affordable Refinance Program (HARP) has helped almost a million American homeowners refinance high interest loans, even if they owe more than their home is worth. Today’s 30-year fixed rates are higher than they were at the beginning of 2013, but they’re still historically low. If you’re one of the many Phoenix homeowners struggling each month to make mortgage payments, you may be eligible for refinancing through HARP.

If you think it might be time to refinance your current home loan, we’d love to discuss your refinancing goals. Simply fill out our Fast Response form or call our local branch at (480) 751-3400. We look forward to hearing from you!

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