Four Reasons to Refinance Right Now
As interest rates remain near record lows, the popular refrain is that “it’s time to refinance.” But is it the right decision for you? Let’s look at some of the benefits of refinancing right now.
Lower Interest Rate
Paying less in interest is always the goal when borrowing money. So the first thing to look at when considering refinancing is whether you can lower your current mortgage interest rate. If you’re at a higher rate, this may be reason enough to pull the trigger. You may also consider moving from a variable rate to a fixed rate or vice versa depending on your remaining balance and term. Check your current situation then compare available rates to see if the math makes sense.
Shorten the Term
A lower interest rate allows you to either lower your payment or shorten your term. Some homeowners may choose to keep a similar monthly payment and take the reduction in the number of years on the loan. Others may find they can lower the payment and shorten the term if their current rate is significantly higher, which is a true win-win.
Consolidate Debt or Access Funds
Tapping the equity in your home is often a good idea when interest rates are low. Common reasons are to consolidate high interest loans or credit cards, paying for college or even making much needed home improvements. Homeowners should always use discretion when adding debt, even at attractive rates. But a low interest refinance can improve household cash flow and provide funds that may not be as accessible when rates are higher.
Get Rid of Mortgage Insurance
If you remember hearing “PMI” when you first secured your mortgage, then you may want to consider a refinance. PMI is Private Mortgage Insurance which is typically required in an FHA loan or conventional mortgage if the borrower has less than a 20% down payment of the purchase price. This premium is added to the monthly mortgage payment, thereby increasing the amount. If your loan to value ratio has improved, a refinance may allow you to eliminate the PMI expense once and for all.
Refinancing can be a smart financial decision while rates remain attractive. However, homeowners should evaluate their specific situation before seeking a refinance. Key factors include the number of years you expect to stay in the home, potential funding needs, costs to secure the loan, and of course, your current rate, balance, and term on your existing mortgage.
If you are interested in learning more, reach one of our mortgage specialists at any of our local branches.
published on 06/23/2021