Should You Consider Refinancing Your Mortgage? Read This To Find Out
With mortgage rates dropping in the first quarter of the year, the number of homeowners refinancing has steadily climbed.
And it’s no wonder why. Refinancing your mortgage can come with serious benefits. From lower interest rates and reduced monthly payments to faster repayment periods and access to quick cash, the advantages are many if the timing is right.
Still, refinancing isn’t for everyone. If you’re not sure that refinancing is right for your specific situation, just ask yourself these questions to find out:
Is your rate higher than the going average?
If your current mortgage rate is higher than the current average (see Freddie Mac for this info), then refinancing could be beneficial. If you have good credit and are current on your mortgage and other debts, refinancing might mean a lower interest rate and thousands less in interest costs over the life of your loan. It could also lower your monthly mortgage payment, freeing up more funds for savings (or for paying down your loan faster).
Do you have an adjustable-rate mortgage?
If your current mortgage loan has an adjustable interest rate and your rate may soon change, then refinancing into a fixed-rate loan can be a prudent idea. Not only would this protect you from potential rate hikes (and higher interest costs overall), but it can give you a consistent monthly mortgage payment for the remainder of your time in the home.
Do you want a lower monthly payment?
Refinancing can lower your monthly payment in one of two ways. First, you can refinance into a loan with a lower interest rate. This lowers your interest costs and, subsequently, your monthly payment.
You can also refinance into a longer-term mortgage. This spreads your loan balance across more years, therefore lowering your payments in the process. The right option depends on your credit score, how long you plan to be in the home and many other factors.
Has your credit or home value improved?
If you’ve improved your credit significantly since applying for your initial mortgage, then refinancing might mean a lower interest rate or more favorable loan terms. Pull your credit report and compare it to your initial loan documents just to be sure.
The same goes for improved home value. If you’ve made choice improvements or the neighborhood has seen rising home prices, then refinancing could also help improve your situation. The increased values may push you into a different loan-to-value bracket, meaning a potential lower interest rate as a result. It may even let you cancel your private mortgage insurance and save on monthly and annual costs.
Are you getting divorced?
If you’re getting divorced or parting ways with whomever you bought your home with, refinancing can allow you to “buy” out the other party. You might even consider this if mom and dad helped you buy the home, and you’re ready to assume full responsibility of homeownership now.
Do you want to pay off your loan sooner?
Have your finances changed and you’re now able to handle a larger monthly payment? Just want to have your mortgage potentially off your shoulders sooner? Refinancing into a shorter-term loan can make it happen. You’ll likely get a lower interest rate, too.
Do you need money for renovations, medical bills, college tuition or some other expense?
Cash-out refinancing allows you to tap your home equity — the portion of the home you actually own — for a quick infusion of cash. Use it on remodeling projects, your child’s tuition, unexpected bills or repairs, or any other expense that might come up.
Do you have lots of debt?
If you have countless credit cards and other accounts, each with their own interest rates, fees and due dates, then refinancing might make things easier. Refinancing can allow you to pay these other accounts down, essentially rolling their balances into your overall mortgage loan and consolidating debt. You can then work on paying them all off over time, with just one single payment a month.
Are you paying for mortgage insurance?
In the event you’re still paying private mortgage insurance (or you have an FHA loan and will pay a mortgage insurance premium for the life of the loan), then refinancing can certainly help your case — as long as you’ve got enough equity in the home.
If you have an FHA loan, refinancing into a conventional mortgage can help you remove your permanent mortgage insurance costs. A 20-percent equity stake can also allow you to cancel your mortgage insurance on a conventional loan — though you don’t need to refinance to do this.
Not Sure Refinancing is Right?
As you can see, there are many times refinancing can be beneficial. Not sure if it’s right for your unique situation? Reach out to Embrace Home Loans today. We’ll walk you through your financial options.