Rates continue to remain low, which means a mortgage refinance is a great idea for many homeowners. Securing a lower rate and lowering your monthly payment are the most desirable reasons to refinance your home. However, there are many other great reasons homeowners refinance their mortgage loans.
Let’s take a look…
You know what they say about timing the market, right? It’s practically impossible. But if you can hear clear rumblings that interest rates may go up soon… why gamble?
The Federal Reserve has recently been sending signals that indicate interest rates will be going up soon. The fact that today’s mortgage rates are near historic lows combined with this threat of rising interest rates makes it an ideal time to pull the trigger on your refinance.
Have you had your mortgage for 5 years or more? There is a huge chance that the rate on your loan is higher than current interest rates. Rates are still near all-time lows and this is the number one reason to consider a refinance of your mortgage. Dropping your rate even a single percentage point can save you thousands of dollars in interest charges each year, which in turn can lower your monthly payment and provide you with more disposable income. This may be even particularly important if you are closing in on retirement and are on a fixed income.
Need money to pay down high-interest debt, home improvements/repairs, or college tuition for your children? If your home has increased in value and you have paid down your mortgage sufficiently during the course of your current loan you may qualify for a cash-out refinance or home equity loan. The cash you receive can be used responsibly for many important needs.
Maybe you have a 30-year fixed rate mortgage but you want to pay your home off sooner. For example, refinancing to a 15-year fixed mortgage may increase your monthly payments but it will allow more of your hard-earned money to go towards the principal of your loan. This will save you a ton of money in interest and the total cost of your home in the process.
Did you purchase your home with less than 20% down and are paying mortgage insurance (PMI) as a result? If today your outstanding loan amount is less than 80% of your appraised home value, you might be able to refinance into a loan without PMI! This is particularly important if you are currently in an FHA loan. Current FHA loans will not automatically cancel your PMI once your loan-to-value ratio falls below 80%. The only way to get rid of the mortgage insurance connected to an FHA loan is to refinance or sell your home.
Credit score is directly tied to mortgage rates. If you got your loan at a time when your credit score was less than optimal, your rate was probably negatively affected. If you have taken time to improve your credit and have a lower rate today, it is definitely worth considering a refi to potentially get your mortgage rate down.
An adjustable rate mortgage (ARM) has an initial low interest rate for a predetermined amount of years based on the terms of the loan. After the initial term your interest rate can go up each year. If you have an adjustable rate mortgage it is extremely wise to evaluate your loan terms to see if it is the right time to refinance. Refinancing to a conventional mortgage could save you thousands of dollars in interest and keep your monthly payment consistent through the course of paying off your home.
The bottom line is that refinancing your mortgage loan into a lower rate is almost always a good idea if you plan on staying in your home for 3+ years. However, refinancing is not free, there are closing costs associated with a mortgage refinance just like an initial mortgage. Talking it through with a trusted and knowledgeable mortgage advisor to evaluate your unique terms and conditions is wise. This will help you make sure there is tangible benefit and that you will be saving money even after factoring in fees.
Schedule a 15-minute consultation to see if you may benefit from a refinance.