Should You Refinance Your Home with Low Interest Rates?
It’s a great time to be a homeowner. Despite economic forecasts that predicted rate increases, home mortgage rates have continued to go down throughout 2019. As a result, it is increasingly sensible to refinance your home loan. Curious what a lower rate might mean for your monthly budget? You can use a mortgage calculator to find out how small changes in the rate can mean big changes in your payment.
For current homeowners refinancing a home mortgage opens the door to a variety of opportunities such as reducing monthly mortgage payments, eliminating private mortgage insurance (PMI) or paying off other debts. However, even with lower interest rates the question of whether to refinance a home loan is not always obvious nor is it always yes.
Three Easy Questions to Ask About Refinancing Your Home Mortgage.
When it comes to refinancing your home mortgage a lot of factors come into play. Even knowing if you should refinance can feel like a puzzle. As a starting point, there are three quick and easy questions you can answer that will help you arrive at the right answer.
What is your current mortgage rate and what’s the new rate?
The first thing you need to do is find out your current home loan interest rate and then ask a lender what rate they can offer you. If the difference is not near 1% or more, a refinanced home loan may not be your smartest choice. Why not? Refinancing a home loan is not free. There is always going to be a cost involved (the names lenders give those fees and where they are applied can vary so ask questions). From a bottom-line perspective, if your difference is not near 1% percent, you likely will not cover the refinancing fees in a reasonable time frame.
Will You Stay or Will You Go?
The second question you need to answer when considering home refinancing is how much longer you intend to remain in the home. If you don’t plan to live at that address for about five more years, it’s not likely a good idea to refinance your home mortgage loan. The reason once again is cost. Even with a rate decrease of 1%, it’s not unusual for refinancing to take around five years of savings to make it worth it. If for example, you were to sell your home two years after a mortgage refinance, it’s likely that you would have actually lost money on the refinance process—despite paying a lower monthly payment.
Will You Be Approved?
You might not know off-hand if you will be approved to refinance your home loan or what rate you receive. However, there are some factors that you should take into account. If you or any co-signers history include a divorce or job loss/change, it could impact your ability to be approved for refinancing. Also, any negative changes to your or your cosigner’s credit score, increases in personal debt, or the acquisition of other loans may impact your ability to refinance. But you don’t have to judge for yourself. If there’s any doubt, call a loan officer. They can quickly help you answer questions about disqualifying factors.
Your Same House Suddenly Costs Less.
When you refinance your home mortgage, you are essentially buying your current home for less than you initially agreed to. No, the purchase price of the home doesn’t change, but the amount you will pay in total does decrease, and often, quite a bit. Now your only question is how to make the most of those savings?
Pay Off Your Home Faster.
Refinancing your home mortgage to a lower rate will reduce your monthly payments—and those savings could pay off your home years faster. When selecting the refinancing program, you could opt to change the length of your mortgage. For example, suppose you are 8-years into a 30-year mortgage when refinancing. Yes, you could opt for a new 30-year term with lower rates, but a wiser choice might be moving to a 15-year loan. Why? Well, if you are comfortable paying your current monthly payments you will likely find the payments for a 15-year loan will be similar. So rather than cashing out the monthly savings, you continue to put that money toward the home knowing it’ll be paid off seven years sooner in this example.
A Better Home and Maybe a Garden.
Another way to benefit from a home mortgage refinance is to reinvest the monthly payment savings into a home renovations fund. A home will likely be the biggest investment you make. A great way to see the best return off that investment is through renovations, additions, and upgrades. Traditionally upgrading kitchens and bathrooms or adding bedrooms deliver the best return on investment—but be warned—there is no guarantee that improving your home will improve its value. Other market factors come into play, so be smart if make upgrades knowing they may not turn a profit or even pay for themselves.
Come Home to Less Debt.
Lowering your home mortgage interest rate can help you to reduce how much you pay for other loans. The savviest thing a penny-wise person can do is to evaluate all of their debt and the associated interest rates to see how much they are paying finance charges. Whether it’s a loan or a credit card, ultimately when you are “borrowing” money you are buying money. Obviously, you want to pay as little as possible for that money. By refinancing your home mortgage, you’ll lower the amount you pay for each dollar. For people burdened with various high-interest debt like credit cards or student loans it’s advisable to take the monthly savings from a refinanced home mortgage and apply it to paying down the principal on highest interest rates loans. Yes, owning your home faster is great and adding a new bathroom might be needed but when you look at your total costs each month, paying off high-interest loans first makes the most dollars and cents.
Time To Call The Loan Officer.
Is refinancing right for you? Is now the best time for you to refinance? You can research these questions and more online, but the most proven way to get accurate information about your unique situation is to find a loan officer. Contacting a loan officer is free while the information and guidance they provide are invaluable. Plus, you are in no way obligated to move forward with an application. Want to get started now? Complete our Quick Start Form and we’ll connect you with a loan officer that matches your specific needs. They’ll provide a free consultation and guide you through every step of the loan application process.