Refinancing a mortgage is the process of taking out a new mortgage to pay off your existing mortgage. Although refinancing can be a time-consuming process, in many cases it is entirely worthwhile. Answer the questions below and see if it might be a good time for you to look into starting the refinance process.
Have interest rates dropped significantly?
Most financial advisors will suggest refinancing if the current interest rates are at least 2% lower than the rate of your current mortgage. But if you have a high loan balance, it’s worth looking into a refiance for just a .50%-1.0% difference in rate. Reducing the interest rate on your mortgage will help you save money on your monthly payments while allowing you to build equity in your home at a faster pace.
Can you shorten the term of the loan?
If you can manage your current monthly payment, there’s a chance to convert your loan from a 30 year fixed to a 15 year fixed while having the same or slightly higher payment. This is because shorter-term mortgages give you lower interest rates. Combine the current interest rate environment with a shorter mortgage term, and you may be able to have the same payment, but pay off your loan 10-15 years earlier. Talk to one of our mortgage experts to see if this is a possibility for you.
Do you need to consolidate your debt?
If you have multiple outstanding debts that are being paid off simultaneously, refinancing can be a good way to pay off your old debts and combine them into one monthly payment. If your outstanding debts have different interest rates, combining them into a new mortgage with a lower interest rates is doubly efficient, and will save you both hassles and expenses in the long run.
Do you need to make use of your home equity?
If you’ve built equity in your home and now need to take out a bigger loan to pay for a large expense like college or home repairs, using a cash-out refinance may be a way to go. Your house payment will likely be higher, but overall payments may be lower, considering you are eliminating a student loan bill or credit card payments. It’s worth consulting with a mortgage lender to determine if refinancing will help you meet your financial goals.