With record low interest rates inspiring confidence in the real estate market, it may be an ideal time to consider refinancing your current mortgage loan if you wish to lower your interest rate and payment, shorten the term of your loan, get cash out for home improvements or consolidate higher interest debt.
We’ve put together some tips to help you decide if it’s the right time to refinance your home loan.
Know What Refinancing Means
Before you consider the option to refinance your home loan, you need to understand how refinancing works.
When you refinance your current mortgage, you essentially pay off your existing loan and replace it with a new one. The decision to refinance depends a lot on your specific situation including your home’s value, your original loan terms, and your goals. A Chris Doering Mortgage loan specialist can help you determine if refinancing is an option for you.
Define Your Goals
Before you choose to refinance your home loan, you need to know why you’re refinancing. You’ll be replacing your current loan with a new one, so you need to know what you’re looking for in your new loan.
There are many reasons to refinance, depending on your goals. The most common reason is to secure a lower interest rate. This can lower your monthly payment and save you thousands to tens of thousands in interest over the life of your loan. In some cases, this can also present an opportunity to shorten the term of your loan.
Record low mortgage rates are creating a buyer’s market. Find out if now is the time to take advantage of historically low rates.
When you want to decrease your monthly payments, the most important factor is interest rates. If current rates are lower than rates when you secured your original loan, you have an opportunity to decrease how much you’re paying in interest each month. For example, if you have a $400,000 30-year fixed mortgage and you can decrease your rate by ½ a point, you can decrease your payments by $135 a month.
If your goal is to reduce the length of a mortgage, you’re likely looking at changing from a 30-year to a 15-year loan. Of course, this means higher payments each month. But if you’re financially capable of making those payments, you can save a good deal in interest payments over the life of your loan.
Another reason many people consider refinancing is to consolidate higher interest revolving debt. This can not only save you money, but also gives you the peace of mind of having one fixed monthly payment. There may also be tax advantages so consult your tax professional for more information.
Finally, refinancing is a wonderful option to get cash out of your home for improvements. If you’re considering a kitchen or bath upgrade, room addition or perhaps installing a swimming pool, using the equity in your home to enhance your lifestyle and your home’s value, can be a win-win.
Consider Your Finances
To be considered for a refinance, you have to look at your financial picture much the same way you did when you secured your original loan. These basic indicators are what determined your eligibility for a new loan in the first place:
- Your credit score and history
- Your income, debt, and monthly housing payments
- Your current home value
Having this information ready will help a loan specialist better determine whether you’re in a position to benefit from refinancing.
Compare Mortgage Rates
For most homeowners, refinancing can help secure a lower rate, which means lower monthly payments.
Some homeowners may also benefit from switching their loan type; for example, from an adjustable mortgage to a fixed, or a 15-year loan instead of 30-year. These situations will vary, so it’s best to sit down with us to talk through all the options.
Right now, rates are incredibly low, which means the opportunity to secure that lower rate is available for more and more homeowners. This period won’t last long, as rates will inevitably increase so don’t wait.
Find Your Break-Even Point
It’s important to remember that refinancing comes with closing costs. Closing costs can include an origination fee, home inspection fee, title examination, flood certification, and more. A smart refinance move can save you considerably more than these costs.
The bottom line is how much is the refinance going to cost you, how much will you save, how long will it take to recoup your cost, and are you planning to be in the home long enough to reap the benefits of the refinance.
Talk to an experienced mortgage professional who knows your loan and your goals, and can walk you through whether it is a good time for you to refinance.
At Chris Doering Mortgage, we’re expert mortgage planners. We take an advisory role, and take the time to walk you through each step to find exactly the right option for you. Give us a call today to see if refinancing may be a great opportunity for you.