It’s generally considered beneficial for homeowners to refinance if they can drop their existing interest rate by a full percentage point. So, if you have an interest rate that could use some lowering and have a good credit history that would support refinancing – then it makes sense to refinance.
Reasons Why Refinancing Makes Sense
Your mortgage refinance rate is primarily based on your credit score and the equity you have in your home. You are more likely to get a competitive rate as long as your credit score is good, and you have proof of steady income. It is wise to refinance if the rate is lower than your present rate, if you are looking to pay off the loan quicker with a shorter term, if you have enough equity in your house to eliminate paying mortgage insurance, or if you are looking to tap a bit of your home equity with a cash-out refinance.
Will The Cost Of Refinancing Make It Worthwhile?
The most important thing to know about refinancing is that it involves closing costs, so it only makes sense to refinance if the new interest rate is substantially lower than the old one. In principle, the more time that has elapsed since your initial mortgage began, the wider the gap in interest rates needs to be for a refinance to be profitable. As a rule of thumb, in the early years of a mortgage a 0.75% lower interest rate should be enough to deliver savings, while in the mid-to-late years of the repayment term, a 1-2% lower interest rate is needed. Of course, always do your own calculations before refinancing. You will spend an average of 2% to 5% of the loan amount in closing costs, you will want to figure out how long it will take for monthly savings to recoup those costs.
Can You Change Your Mortgage Type?
Contact your lender if you think you qualify for a modification. On the other hand, a refinance replaces your existing mortgage with a new loan. When you refinance, you can change your loan’s term, your interest rate, and even your loan type. You can also take cash out of your equity with a cash-out refinance. If your family has increased or maybe you are now an empty nester, there is a chance you will not stay in your home long enough to break even on the costs of refinancing. If you know you are moving in a few years, refinancing to an ARM from a longer-term fixed loan might help you save some money because lenders usually offer lower interest rates on those loans.
Think about the details of your current mortgage and whether your current home will fit your lifestyle in the future. How those factors play off each other could have a role in your refinance decisions. If you are nearing the time of an adjustable-rate increase, you might benefit from refinancing to a fixed-rate mortgage to get an interest rate that will not fluctuate.
Has Anything Changed From Your Last Mortgage Loan Closing?
Has your credit score and payment history improved? If so, you might qualify for a better interest rate which will help you save more per month. Or, perhaps, you have taken on student loans, bought a new car, or have credit card debt? The positive and negative will both affect the ability to get a good rate if you want to refinance your mortgage. If now is not the ideal time for you to refinance, keep plugging away at your current mortgage payments and improving your credit so you will be ready to strike when the time is right.
Gone are the days when you had to walk into a physical branch to apply for a mortgage refinance. These days, many mortgage lenders let you apply for a refinance online, sometimes through a fully automated online mortgage platform and other times with phone assistance from a loan agent. If convenience is important to you, then keep an eye out for digital-friendly lenders.
Contact Dan (954-336-1922) for a free consultation!
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About Dan Campanella – Mortgage Specialist
Dan provides clients with years of proven experience and an abundance of financing options for their mortgages. His common sense approach and devotion to customer service is what sets him apart in the highly competitive mortgage industry. Dan prides himself on consistently delivering “referable services” to his clients, referral sources, and partners.