Yours truly will be featured for the fifth time in the San Francisco Chronicle's Real Estate Sound Off where the following will likely be edited down to fit in the space allotted. But just for you, here's my full thoughts on paying off your mortgage versus refinancing.
When considering how to approach the mortgage on your home there are a few things to consider: How long do you plan to live there? What kind of loan do you have and how does it fit into your long term plans? How much equity do you have in the property? What is your interest rate compared to current rates?
Because of the lending fiasco of the early and mid-2000’s many people think that refinancing their home means pulling money out, but that’s not always the case. If your interest rate is higher than the current rates for a comparable loan, why not refinance and reduce your interest rate? As long as the fees to do so don’t outweigh the long-term benefit there’s no reason not to keep more money in your pocket each month. If your plans changed and the length of time you will stay in your home has lengthened (or shortened) making a different loan a better fit for your new plan, talk to a mortgage broker to see if there are ways to lower your monthly payment or restructure your loan for greater long-term stability.
If you decide to pull some money out of your home, carefully consider what that money is going to be put toward. Will you use it to do home improvements and increase the overall value of your home? Like reinvesting dividends, that could be a good use of your money. Finally, if you plan to spend some of your equity but are happy with your loan, consider a home equity line of credit which will preserve your primary loan and won’t draw on your equity until you actually spend the money.