With interest rates at an all-time low, you might be wondering if it’s time to refinance your home. When you refinance your mortgage, you are essentially paying off your existing loan, and replacing it with a new one with better terms to reduce your monthly payments.
There are multiple reasons why you might want to refinance your mortgage:
- to obtain current low-interest rates
- to shorten the term of your mortgage
- to convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage
- take advantage of your equity to deal with a financial emergency (ex. put a new roof on your house) or to build an improvement (ex. build a new pool)
Wondering when is the right time to refinance your mortgage? Well, it depends on your financial situation and the reasons that you want to refinance. Refinancing can save you money—but in some, cases it may not. True Concept Title delves deeper into all the reasons to refinance.
Considerations When Refinancing Your Home
Refinancing can have many benefits. Reducing your interest rate not only can help you save money on your monthly mortgage payments, but it can also increase the rate at which you build equity in your home. But, you’ll want to make sure that the process makes sense for you.
- Consider refinancing to shorten the term of your mortgage and enjoy lower interest payments
- Depending on how long you plan to live in your home, switching to a fixed-rate mortgage or an adjustable-rate mortgage can make financial sense
- Using equity to consolidate debt can be a good reason to refinance, but be aware, doing so could make your debt worse and just be a band-aid on a bad financial situation.
When you’re ready to refi, choose our experienced agents. With our national title company, we are with you every step of the way when you refinance your home! We coordinate order entry, escrow, funding, disbursement of loan funds, and much more. Call us today for all your title, escrow, and mortgage processing needs – 866-651-6224!
Refinancing To Take Advantage of Lower Interest Rates
Refinancing to take advantage of lower interest rates is the most common reason that homeowners refinance. Generally, if you can reduce your current interest rate by at least 2%, then refinancing is most likely a good idea. Keep in mind that refinancing can cost between 2%-5% of your loan’s principal and requires a real estate appraisal, associated fees, title search, etc.
Ask your mortgage lender to make sure that it is a financially-wise decision before starting a home refinance application.
Refinance to Shorten Your Loan Term
The good thing about refinancing is that you might have the opportunity to change both the monthly payment and the length of your loan term. Why continue paying towards a 30-year mortgage when you can have it paid off in 15 or 20?!
Keep in mind that changing the length of your loan might increase your payment slightly rather than causing it to be less.
Refinancing to Convert to an Adjustable-Rate or Fixed-Rate Mortgage or Vice-Versa
While your ARM mortgage might start with a lower rate than you might find with a fixed-rate mortgage, these loans go through periodic adjustments which can increase the interest rate over time. If you have noticed an increase in your interest rates with an ARM mortgage, it might be time to switch to a fixed-rate mortgage that offers a lower interest rate and eliminates the worry of future interest rate changes.
On the other hand, converting from a fixed-rate loan to an ARM can be a good idea if you notice interest rates falling, because they often have a lower monthly payment then fixed-rate mortgages. This is a great option for those who don’t plan to stay in their home for more than a few years.
Tip: If interest rates continue to fall, an ARM loan can be beneficial because the periodic rate adjustments would result in decreased rates and smaller mortgage payments which eliminate the need to refinance when rates drop. But, this can go the other way. Be aware that interest rates might rise again in the future!
Refinancing to Tap Equity or Consolidate Debt
Many homeowners refinance to pay for a large expense, like putting a roof on their house, adding a pool, or even sending a child to college, or to consolidate debt.
When you look at it on paper, replacing your high-interest debt with a low-interest mortgage sounds like a great idea. Unfortunately, refinancing isn’t a fix-all for financial situations. Don’t give up your hard-earned equity easily! In some cases, it can take years to recoup the 3-6% of the principal that refinancing your home costs. If you don’t plan on staying in your home for more than a few years, it might be wise to skip on refinancing.
With You Every Step of Refinancing
Refinancing your mortgage can be a great financial move if it reduces your interest and monthly payments, shortens the term of your loan, or helps you build equity in your home more quickly. Before refinancing, take into account your current financial situation and consider how long you plan to live in your current home, and how much money you can save with refinancing.
We support mortgage processing with national titles and escrow service; True Concept Title does it all! Choose us for quick turn-around times, centralized processing, and loan disbursements you can trust. Call 866-651-6224 today to speak with a specialist!