Friday, 9 November 2018
Is it a good time to refinance your home? That depends.
With interest rates near historic lows, refinancing is a good option for many homeowners looking for ways to cut their monthly expenses. Let's take a look at the various ways a refinance may be able to save you money.
Homeowners refinance for many different reasons. For example, you may want to save money on the life of your mortgage by shortening the term of your loan. Or you may be searching for ways to reduce your monthly payments by finding a lower interest rate.
You may also want a shorter-term loan that can help you build equity in your home and pay off your mortgage sooner. You can possibly save a lot of money over the life of your loan with a shorter repayment schedule.
Another option to consider is switching to a fixed-rate loan. A record-low interest rate will likely only go back up eventually. Therefore, if you have an adjustable-rate mortgage, you might want to lock in that low rate right now. Potentially eliminating private mortgage insurance (PMI) is another benefit to refinancing. If you're paying PMI, which is the monthly payment you make when your loan exceeds 80 percent of your home's value, you'd probably love to get rid of it. A refinance may be a way for you to do this, depending on the type of loan you have.
Remember that when you refinance, you're ideally replacing your current home loan with a new one that may be a better alternative for your specific situation. Make sure you're examining all your options to see what's right for you.
There can be fees associated with closing your existing loan, like such as certain pre-payment penalties that apply in some cases. It's a good idea to contact your mortgage provider and find out what you may end up owing. It's also smart to understand what the new loan will cost you—including closing costs, attorney fees, and other charges.
Here's a quick guide to help you determine whether the expense of a refinance is worth it: Let's say your total costs are $3,000, and your new interest rate will lower your payment by $100 per month. Take that $3,000, divide it by $100, and you get 30 months. In other words, your new mortgage will not begin saving you money until you've lived at your house for more than two-and-a-half years. If you expect to move before that time, a new mortgage is probably not for you. Sometimes refinancing is not worth it.
But if you expect to stay in your home for a long time, it may be worth exploring what refinancing options you have. Try our mortgage refinance calculator to see if refinancing is right for you.
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