Have you checked mortgage interest rates lately? If rates happen to be lower than when you bought your home, it may make sense to refinance to a lower rate. Read on to learn more about refinancing and to see if it’s something you should consider.
Refinancing a mortgage means paying off your existing home loan and replacing it with a new loan. There are many reasons why a homeowner would choose to refinance their mortgage. For example, a homeowner with a 30-year home loan may want to refinance to a 15-year loan to shorten the length of the loan. Refinancing also gives homeowners the option to tap into their home’s equity or convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. The most popular reason right now why homeowners are choosing to refinance their mortgage is to get a lower interest rate.
Why Refinance to a Lower Rate
If interest rates have dropped since you purchased your home refinancing to a lower rate could save you thousands of dollars over the life of the loan. In the past, experts advised only to refinance if you could reduce your interest rate by up to 2% however, with rates as low as they are today experts agree that lowering your interest rate by just 1% offers enough savings to make it worthwhile for homeowners. For example, if you reduce the interest rate of a 30-year $200,000 mortgage by just 1%, from 6% to 5%, you can save over $45,000 in interest payments.
A lower interest rate can also mean a lower monthly payment. With a lower monthly payment, you can use the extra money for savings, paying off debt and much more.
When to Refinance to a Lower Rate
Interest rates on mortgages can change from year to year and even day to day so it can be hard to know when it’s the right time to get the best rate. Meeting with a mortgage expert or financial advisor can help you go over all of your options to ensure that locking in a lower rate will make financial sense down the line.
In addition to interest rate fluctuation, you should determine if the costs of refinancing justify the savings before you refinance your mortgage. On average, the costs of refinancing a mortgage can cost between 3-6% of the loan’s principal. Many experts agree that if you are not planning on staying in your home for more than a few years, the costs of refinance outweigh the benefits. Using a mortgage calculator can help you determine if refinancing makes sense for your situation and how long it will take to breakeven.
The Bottom Line
With mortgage rates still at all-time lows, homeowners have more options than ever before. Refinancing can be a great way to lower your interest rate, reduce your monthly payments, shorten the length of your loan and much more. Before you decide to refinance, make sure you look carefully at your financial situation to determine if refinance your home loan makes sense.
If you have questions or want to learn more about your options, meet with a Palisades CU mortgage expert today! At Palisades Credit Union we strive to help our members finance the home of their dreams and understand that finding the right home and mortgage sets a solid foundation for successful homeownership.
Palisades CU is federally insured by NCUA. Company NMLS # 784941. Equal housing opportunity.
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