Adding Cash to Your Mortgage

Adding Cash to Your Mortgage
IN THIS ARTICLE:
  • PMI protects the lender, so why pay for it?
  • Shorten your term to cut the interest expense.
  • Cut your monthly mortgage payments.

When Does it Make Sense to Add Cash to My Refinance?

Consumers bombard Bills.com with refinance questions that are variations on the same theme: When does it pay to put cash into my mortgage? Although everyone’s personal mortgage situation is different, those who meet one or more of the following three situations make for the best candidates for adding cash into their mortgage:

PMI

If you have Personal Mortgage Insurance (PMI) already, adding cash to your refinance may help to remove the need to pay that extra premium. This can save you thousands just by lowering your loan-to-value ratio under 80% in most cases.

Lower Term

Consumers looking to own their home as soon as they can will opt to add as much cash as possible. This can help to lower your term by selecting a shorter loan in your refinance. Adding cash helps to reduce the increase that shorter term will have on your monthly payments.

Lower Payments

The most basic reason for wanting to add cash to a refinance is lowering monthly payments. For many, this is the only advantage of adding cash, but it may be a good one. Lowering these payments will allow you to take advantage of the savings over the long term. Those looking to do more with their money tomorrow may find the right move is adding cash to their refinance today.

Of course there are two sides to this coin. Those who are not planning on staying in their homes for a long time (more than 7 years) and have low credit scores should avoid adding cash to a refinance. Also remember that if you don’t have it, don’t spend it. Going into debt to pay off your mortgage sooner is never a good idea.