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  • Why and When to Refinance Your Mortgage Loan

    By | 2017-09-15T10:48:20+00:00 June 25th, 2017|Refinance a Home|

    Refinancing your mortgage loan can potentially lower your interest rate and help you save money in the long run. Many homeowners choose to refinance, but it’s important to know the right reasons. We’ll explain a few of the reasons why and when you may choose to refinance.

    Reasons to Refinance: To Lower Your Monthly Payment

    This is the most common reason homeowners refinance their mortgage loan. A lower interest rate results in lower interest payments. It’s a good idea to keep an eye on interest rates, just in case they drop several points. Average interest rates on fixed-rate mortgages have ranged from more than 15% in the early 1980s to less than 4% after the year 2000. With movement like that, the savings can be significant.

    When to Refinance

    Knowing the best time to refinance is one of the most important parts of the process. If you do simple online research, a general rule you’ll find is to refinance when interest rates drop 2 percentage points or more. That way, you could save on interest payments throughout the term of the loan. But that’s not the only time when refinancing is a good idea.

    When a Smaller Drop in Rates Makes Sense to Refinance

    While the two percent rule makes sense in many cases, sometimes it makes sense to refinance when interest rates drop only 1.5 percent or 1 percent. If you plan to keep your home for many years, you may still profit from refinancing when interest rates drop less than 2 percent. You just have to run the numbers to be sure.

    Using Your Home’s Equity

    If you’ve built up equity in your home, you also may want to consider replacing your old mortgage with a larger loan, pulling out some of the equity you’ve built up as cash for debt consolidation or other purposes.

    Or, you may want to use the savings in interest to reduce the length of your mortgage. For example, a $100,000, 15-year, fixed-rate mortgage at 8 percent will cost you less than $75,000 in interest over the next 15 years compared to $165,000 for a 30-year mortgage. Another way to reduce the mortgage term is to make extra payments whenever possible. You also sometimes can establish a twice-monthly payment plan with the mortgage lender to shorten the mortgage term.

    Using a Fixed-Rate Mortgage

    If you have an Adjustable Rate Mortgage (ARM) and interest rates keep rising, you could replace your ARM with a fixed-rate mortgage. Some people prefer knowing exactly what their mortgage interest will be, rather than worrying about how much it could rise in the future.

    There are several reasons why and when homeowners refinance their mortgage loans. To figure out exactly whether or not refinancing is your best option, you can call one of our Mortgage Loan Officers. They will walk you through the entire process and help you determine the pros and cons for your situation.