If you haven’t thought about it yet (or done so), this summer may be the perfect time to refinance your mortgage. Mortgage interest rates are still very low and have just recently dropped again. If you’re a homeowner with good credit and sufficient equity in your home, odds are the lower refinance rates are within your reach.
By refinancing your mortgage, you can cut your mortgage payment and possibly shorten the term of the loan. Paying your loan off in a shorter time period is not only a surefire way to save money over the life of your loan, but it is also a way to obtain a more attractive rate on your mortgage.
If you don’t think you can handle higher monthly payments with a shorter-term loan, go with the longer term and make additional principal payments as circumstances allow.
Though you may not get the best rate currently available, you’ll avoid getting stuck with a high contractual monthly payment that could be a stretch for your monthly finances. You can still save money in the long term by paying less in interest on the newly refinanced mortgage.
Although the potential savings with refinancing can be significant, there are a number of factors to take into consideration. In this article, we’ll provide insights and tips to help you better understand if this is an opportune time or not.
Rates Are Still Low
One of the first reasons you should consider refinancing now is because mortgage rates are at an 18 month low. The refinance boom, however, may be short-lived.
During the first part of 2019, it was expected that the Federal Reserve would continue with its policy of raising interest rates. U.S. economic growth was strong and the gross domestic product (GDP) rose by over 3%. After the first quarter, however, things started to change primarily because of uncertainty due to unresolved trade issues with China, Mexico, and other international partners. The markets reacted accordingly and mortgage rates dropped.
Mortgage rates can rise and fall all the time for a number of different reasons. When you’re thinking about refinancing your mortgage, doing it when rates are low lets you grab the opportunity while it’s there. If you wait too long, mortgage rates could rise again, and you will have to wait until another dip if you want to make the most of your savings.
Mortgage Refinance Tips
If you think that you might be ready to refinance your mortgage, there are many things to take into account to ensure you get the best deal. Taking a look at your current circumstances and using a mortgage refinancing calculator can help you to work out what approach you should take when you do decide to refinance. Below are a few of our best tips to help you along the way.
Make Sure It’s The Right Time To Refinance
External factors are important, such as low mortgage rates, but it also needs to be the right time for you to refinance. A general rule of thumb is that you should have at least 20% equity in your home. If your equity is less than 20 percent, and you have a good credit rating, you may be able to refinance anyway.
Refinancing makes sense for a lot of people, but it’s not the right choice for everyone. If you’re going to refinance your mortgage, you should think about the long-term and not just the immediate financial effect. You need to plan to stay in your home long enough that you will be able to get back the three to five percent of your home value that you will spend on closing costs.
Think About Your Refinance Goals
It’s important to think about why you want to refinance your mortgage and what your goals are for doing so. Maybe you want to pay off your mortgage as quickly as possible. Or maybe you want to pay less interest overall. You decide what’s right for you.
If you simply want to pay off the loan as quickly as possible, you will want to look for the shortest term that offers monthly payments that you can afford. If your aim is to pay less interest, you will want a low-interest rate over a shorter term, while if you want to lower your monthly payments, you need a low-interest rate over a longer term.
Refinancing to a mortgage with a shorter term will usually be the best option unless your priority is lowering your monthly payments. A shorter loan term saves you money long-term, rather than offering short-term savings. You save money with a lower interest rate, plus save money over the life of the loan by paying less interest.
You could save tens of thousands of dollars with a shorter loan term and lower interest rate, even if your monthly payments increase. However, it’s important to keep in mind that these savings can alter if your interest rate changes.
Consider A Cash-Out Refinance
When housing prices are rising, you can take advantage of it. If you’re thinking about refinancing your mortgage, a cash-out refinance might be a good option for you. It helps you to release the equity in your home so you can benefit from the cash that you have put into it.
With a cash-out refinance mortgage, you might not be saving on your payments, but you do benefit from unlocking your equity instead. It’s also good to note that some lenders set a limit on how much cash you’re allowed to take out, so you should be aware of this when refinancing your mortgage.
Balance The Costs Of Refinancing
Refinancing your mortgage can save you money through your monthly payments or across the term of the loan. However, it will also cost you to refinance, with fees to pay that are important to take into account.
Before refinancing, you need to think about when you will recover the costs of refinancing. It should be easy to work this out if you know how much you’re going to save each month. With this information in hand, you can then decide whether it’s the right time to refinance. If you’re planning to sell soon, for example, it might not make sense to refinance your home.
Use A Mortgage Refinancing Calculator
Having a clear budget is essential when refinancing your home. General examples can be helpful, but they don’t apply to your specific situation. By using a refinance calculator, you can plug in the numbers that are relevant to you and get helpful numbers. Find out how much you could save with a quick calculation.
Get A Free Analysis
If you’re not sure whether refinancing is right for you or how to get the best deal, a refinance analysis can help. When you use an experienced mortgage banker or broker like A and N Mortgage, you can get free advice on whether it’s the right move and what your next steps should be.
Save By Paying Points
The option to pay points before you close the refinance deal can help lower the interest rate on your mortgage even further. This involves paying money upfront so that you can permanently buy down the interest you pay. If the point system makes financial sense for your specific situation, it could be worth the upfront cost to do it this way.
Pay Close Attention To Your Credit Score
Another thing you want to consider when you refinance is your credit score. Many lenders have strict rules. A credit score of 760 or higher is usually required to get the best rates.
However, if your credit score isn’t ideal, you can improve it fairly quickly. Start by checking for and addressing any errors on your credit report. You should also make sure to pay your bills on time and avoid getting too close to your credit limit. Also, you can work on paying down your credit card debt.
- Remember that interest rates are at a new low and may not stay here for long so don’t miss out on this opportunity
- Consider different factors affecting refinancing costs, including terms, rates, and points, to see if refinancing will help you save money
- Check that you have adequate home equity of at least 20% before refinancing your mortgage as it will make it easier to qualify for a loan
- Have a good credit score before applying for refinancing, and make sure your debt-to-income ratio is 36% or less
- Calculate your break-even point and check how refinancing will affect your taxes
- Talk to a mortgage professional who can easily help you with each of these steps
Refinancing your mortgage this summer could be a good move for you, but you should do some research before making a decision. The easiest way to do this is to talk to a knowledgeable representative from a mortgage company who can help you determine if this the right financial move for you.
A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.