Freddie Mac’s slogan is “We make home possible”—a claim that is literally true for more than a few homeowners. Freddie (the Federal Home Loan Mortgage Corp.) has the stated mission to keep money flowing (that is, supply liquidity) to the nation’s smaller mortgage lenders, while “Fannie Mae” does the same for large retail banks. Both are government-sponsored enterprises.
Recently, Freddie published its “4 Reasons to Refinance Your Mortgage.” Since the Corporation has north of $2 trillion in assets under management, you could say there were at least two trillion reasons why anyone who ever deals with home loans might find the ideas worth checking out. Freddie’s reasons for refinancing:
- Lower your monthly mortgage payments. Ever since home loan rates dipped down into the “historically” low range, financial advisors have urged homeowners to reexamine their current mortgage rates to see if taking out a new loan would put more cash in their pockets.
- Pay off your home loan sooner. If a refinanced loan would carry a lower rate, homeowners who arrange to continue paying the same monthly amount will retire the mortgage at an earlier date. Net result: they’ll own their home free and clear sooner.
- Save on total interest paid. That’s just another way of looking at the end result of a lower monthly interest rate.
- Switch mortgage types. When negotiating a refi’s terms, homeowners may be able to switch from a fixed-rate to an adjustable-rate mortgage (ARM)—or vice-versa.
For homeowners who are reasonably certain that they will move before the first adjustment is made, switching to an ARM could be a desirable way to preserve cash. Likewise, a current ARM loan holder might breathe easier by locking in today’s rates for the long haul.
They aren’t earthshakingly original, but as rates begin to creep higher, homeowners who haven’t yet sat down to work out the consequences of refinancing may be happy later on if they do so at this juncture.