Find out if refinancing makes sense for you.
Lower your interest rateIf you can secure an interest rate that is at least 2% lower than your current rate, it’s definitely worth your time to refinance. For some, a rate even 0.5% lower can make a worthwhile difference.
You could end up saving tens of thousands of dollars over the life of the loan depending on how long you’ve had the loan to begin with. A very good or exceptional credit score will help you qualify for a lower interest rate.
Shorten your mortgage termYou may be able to shorten your 30-year fixed-rate mortgage to a shorter-term loan. Your monthly payment may increase, but the savings realized by paying fewer years of interest will be well worth it. A shorter-term mortgage will also enable you to build equity faster.
Change your mortgage typeIf you currently have an adjustable-rate mortgage, you may be able to benefit from switching to a fixed-rate mortgage and locking in a lower rate. Having your payment remain fixed for the remainder of your loan term is always helpful for budgeting purposes!
Eliminate PMIIf you purchased your home with a down payment less than 20%, you’re paying private mortgage insurance (PMI) each month. Refinancing could end up making your new loan balance less than 80% of the home’s value, which means you wouldn’t have to include PMI as part of your new financing.
Each lender has its own process for having this done, so be sure to ask yours if you have any questions.
Cash-out refinanceWith a cash-out refinance, the amount you borrow beyond your current mortgage balance is made available and can be used in any way. For example, if you owe $80,000 but borrow $100,000, you will have $20,000 to spend. You will owe $100,000, so the equity in your home acts as collateral and is reduced by $20,000. Much like a home equity loan, you’re borrowing cash again your home value. Both borrowing options provide the same outcome, but with the cash-out refinance, you pay only one monthly mortgage payment instead of paying your original mortgage plus a home equity loan payment.
Why doesn’t everyone refinance?Every homeowner’s situation is unique, so it’s not always a no-brainer. Consider the following circumstances: the interest rate you can secure based on your credit score, the amount you owe on your current mortgage, and how long you plan to own your property. There are costs associated with refinancing, too, including several fees and points. Points enable a lender to offer a lower interest rate. Each point equals 1% of the mortgage loan. So, if you’re refinancing $150,000, one point would cost you $1500. According to federalreserve.gov, the estimated cost to refinance is between 3% to 6% of the mortgage principal. Some mortgages come with an early payoff penalty. Be sure to know the details of your loan agreement.
With today’s low interest rates, refinancing is certainly worth exploring. If you think you’re interested, be sure to check out our mortgage options. We offer fixed-rate options as well as two adjustable-rate options that could work for you. And as always, if you’d rather talk it out with someone, our Mortgage Loan Officers will be happy to answer your questions and discuss your best options.