3 Reasons to Refinance Your Mortgage

Deciding to refinance a mortgage is a big decision. Most homeowners know the option exists, but many never take action. They wonder if it will actually save enough money to make it worth the time and effort.

We get it. Big financial decisions can feel stressful. But when it comes to mortgages, the path of least resistance could cost you money — a lot of money. Plus, saving money isn’t the only reason why homeowners decide to refinance.

To help answer common questions, we’re rounding up a few reasons to refi in today’s blog.

Reason One: Get a Lower Rate and a Lower Monthly Payment

The most common reason that homeowners refinance their mortgage is to get a lower interest rate. When you purchased your home, your mortgage was financed at whatever the going rate was at the time. Rates for a 30-year fixed mortgage have varied widely, reaching highs of over 18.00% annual percentage rate (APR) in the early 1980s and bottoming out just below 3.00% APR in late 2020.

Most people know that the difference between a loan financed at 18.00% APR and one at 3.00% APR is vast. However, there is also a big difference between a mortgage at 4.00% APR and one at 3.00% APR. In fact, let’s say you financed $200,000 in the form of a 30-year, fixed-rate mortgage. At 4.00% APR, you’d pay over $143,500 just in interest.

That same mortgage financed at 3.00% APR, though? You’d pay around $103,500 in interest. That seemingly small difference in rate would mean $40,000 in savings! (Psst, try our Mortgage Payment calculator to plug in different rates and see the savings!)

When you refinance to a lower rate, you not only see a difference in the amount of interest paid. You could also see a lower monthly mortgage payment. And, depending on the rate difference, it could be substantial. Who couldn’t use a little extra leftover cash each month?

Reason Two: Change to a Different Type of Mortgage

Not all mortgages are created equal. There are 30-year and 15-year mortgages, fixed-rate and adjustable-rate mortgages, and more. Each type has its pros and cons, and the mortgage you took when you purchased your house may not be the best option for you now.

For example, let’s say you originally took a 30-year fixed-rate mortgage. Since you purchased your home, you’ve substantially increased your income, and you’d like to pay off the mortgage sooner. Refinancing to a 15-year fixed-rate mortgage could be a great option. Although financing to a shorter term generally increases your monthly payment, it will decrease your rate, save you money on interest, and allow you to pay off the mortgage that much sooner.

The same is true for adjustable-rate mortgages (ARM). Maybe an ARM made sense when you bought your house. But now, with rates bottoming out and potentially beginning to climb again, you might want to consider refinancing to a fixed-rate mortgage. That will allow you to “lock in” a lower rate until the mortgage is paid off.

Reason Three: Use Your Equity

Have equity — and plans? You might consider a “cash-out” mortgage refinance. With this option, you can take out a new mortgage that’s worth more than your current mortgage and receive the difference in cash.

Much like a home equity loan, you can then use that cashed-out equity for home repairs or remodels, debt consolidation, unexpected expenses, and more.

Ready to Start Your Refinance?

If you think a refinance makes sense, don’t wait to get started. Connexus can help. When you refi with us, you get personal service and competitive rates.

Whether you want to lock in a lower rate, change the terms of your mortgage, or cash out your equity, call Connexus now. We can answer your questions, discuss your options, and help you get started on your refinance today!