When To Refinance My Home
Maybe it’s time for you to consider a home refinance considering that current mortgage rates are holding low and many people that bought a home 18–36 months ago purchased at a higher rate. With rates today below the 4% range, maybe today is your lucky day.
Last year presented some great rates but chances are that the fees imposed on top your interest rate made it so that refinancing last year didn’t make sense. If you feel like now you are more able to refinance, you may be in luck! Consider that by dropping your home interest rate by only one percentage point, that is like lowering your current monthly payment by 10% each month. That’s money you can use for other things like home improvement, back to school shopping, and more.
Consider that for every $1,000 you are able to pay your lender today, your overall payment may go down by $100 per every $1000 paid off. If you look at that another way, think about your savings over 10 years…. A refinance can easily save you over $10,000 to $12,000 under some scenarios.
If you think you may be close to considering a refinance, it helps to start the process by speaking with an expert than can provide you with an idea of what your individual interest may be.
How Long Before I Should Refinance?
Today’s mortgage rates are hovering in the 4s. Just because rates are low right now doesn’t necessarily mean that today is the right day to refinance! Maybe it is… but make sure you consider a few things first.
Know Your Refinancing Goals!
The main reason to refinance a loan is to save money! Maybe it’s saving money as it goes for your monthly cash out the door, effectively improving your Debt-To-Income ratio, or perhaps you plan to pay down you loan aggressively but are doing so at a lower interest rate. That’s great!
Lower my monthly payments.
This is very common goal when it comes to refinancing your mortgage. With interest rates as low as they have been recently, this is a common goal among many homeowners. If you bought a home recently, expect that a lender will most likely not let you refinance unless your mortgage was issued over 120 to 180 days ago. If you run into some road blocks here, shop around a little bit until you find something that works.
Changing your mortgage type.
It is also pretty typical for homeowners to try and switch their loan type. As life happens and your situation changes, you may find that you want to switch from a conventional loan to a rate and term refinance.
Paying off your mortgage faster.
For some people, these loans seem to never go away… but they will. If you have a FHA loan, you may decided to opt into a FHA streamline refinance after 6 months of owning your home. In other cases, a cash-in refinance helps you build equity more rapidly while also securing a lower interest rate. That sounds like a win/win.
Are There Any Mortgage Pre-Payment Penalties?
While refinancing may seem like a total no-brainer, you may wonder why not all homeowners rush to refinance their homes. Obviously low mortgage rates and paying less in monthly payments helps secure your financial future but there are some things to be mindful of.
Primarily, you will want to check the terms of your existing mortgage and ensure that you won’t be subject to any sort of early payment or pre-payment penalty. While these are more rare these days, they do affect some home loans. If you have any uncertainties, ask a mortgage expert about this.