When to Refinance and What to Do with the Savings

In these volatile and tumultuous times, your household's income level may have drastically changed due to a lay off or extended unemployment. Or perhaps you're just coming off of a long period of unsteady employment and now your income has doubled. Either way, there's one area of your finances that deserves focus: your loans. From auto loans to mortgages and student loans, refinancing can help you weather difficult times or capitalize on upturns no matter which tax bracket or stage of adulthood you're in. Refinancing After College

Young borrowers have a distinct opportunity to enjoy some savings by refinancing or consolidating their auto loans, credit cards or student loans in those first few years after college. That's because when you first got those loans, you had little to no credit history--and now that you've had a few years of on-time payments and responsible borrowing, you've proven to the lenders that you deserve a lower interest rate. Refinancing your auto loans or private student loans now can help you take advantage of that threshold that you've broken.

Refinancing When Unemployed

Here's a common conundrum in America: many borrowers with adjustable rate mortgages (ARMs) are nearing their adjustment period and desperately want to refinance to a fixed rate mortgage before mortgage rates go up (which they likely will, considering the historic lows we're at now). But if you're like approximately nine percent of all U.S. citizens, you're unemployed and can't qualify for a mortgage refinance. The good news is that interest rates are expected to stay low for at least a few more quarters, which may be enough time for you to find a job--but that's no guarantee.

If your spouse is working, you may be able to move to a fixed rate mortgage--though perhaps at a less attractive interest rate and longer term than you would've received if you were both gainfully employed. Depending on your circumstances, locking in the certainty of a fixed rate mortgage may be worth it, since you'll be avoiding the very real risk of having your ARM adjust to an interest rate and monthly payment that forces you into default. And no matter what anyone tells you, a foreclosure is the absolute worst case scenario in terms of your credit history, your finances and, of course, losing your home.

For those who are unemployed with ARMs, it's time to take decisive and preventive action--consider your options carefully.

Refinancing with a New Job

New careers are promising prospects for your home and auto loans, but in most cases, you'll have to be employed for a certain period of time before lenders will allow you to refinance. Depending on the lender and your circumstances, you may have to wait three months to two years before you can qualify for an auto loan refinance or home mortgage refinance. But once you do start seeing the benefits of that additional income, you have a few options. You can reduce your interest rate and/or extend your loan term to lower your monthly payments and get more cash on hand. This extra cash can help you invest in education, build up your emergency fund or avoid defaulting on your other loans. Or you can reduce your loan term to drastically reduce the amount of interest you'll pay in the long run, which can be saved or invested for your next home purchase, your child's education, your retirement fund or other long-term investments.

Refinancing as a Senior Citizen

Senior citizens have a plethora of refinance options at their disposal that can help them supplement their retirement income. A cash out home equity refinance or reverse mortgage refinance can turn your home's value into monthly income or a lump sum. There are a number of FHA sponsored programs that are highly beneficial for seniors.  Seek out an FHA-approved lender to find out more information. As you can see, refinancing is a strategic move that can save you from financial disaster in the short term or save you significant money in the long run. Take time to consider how a car loan refinance, home remortgage or debt consolidation could benefit you.

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