April 2, 2020
3 MINUTE READ
If you could save money on your current mortgage, you would want to, right? Many homeowners wonder is refinancing worth it. Simply put, refinancing a mortgage means that you pay off your existing loan and replace it with a newer one (preferably with better terms).
There are a number of reasons that homeowners choose to refinance. These include: to shorten the loan term, to pay a lower interest rate, or to switch their type of mortgage (i.e., converting from an adjustable-rate mortgage to a fixed-rate mortgage), to tap into their home’s equity to help cover an emergency, to consolidate debt, and more.
And, while it’s true that refinancing your mortgage can save you money — it can also cost you money in the long run. Let’s take a closer look at some situations in which refinancing might be worth it.
It’s no secret that mortgage rates regularly fluctuate, as they are affected by a number of different factors, such as the movement in the financial markets, the US Federal Reserve monetary policy, inflation, national economic conditions, global issues, and more.
If mortgage rates go down, you may be able to save money on your mortgage by securing a lower interest rate than what you currently have. Often referred to as rate and term financing, this option usually switches out the interest rate and usually has the same term remaining.
So exactly how far down should mortgage rates go before you refinance? The traditional rule of thumb is to explore your options once current rates are 1 to 2 percent lower than what you’re currently paying. Of course, everyone’s financial goals and needs are different, so it’s important to weigh your options before making a decision.
There may also be a substantial benefit to refinancing your mortgage if your home has gone up in value — especially if you have other large debts to also pay off. When you opt for a cash-out refinance, you will take out a new mortgage that is larger than your previous mortgage, and then you receive the difference in cash. For many homeowners in this position, a cash-out refinance can be a great alternative to a home equity loan or line of credit.
Of course, with this type of refinancing, it’s important that you use the money you receive responsibly, and make sure that you’re not perpetuating a cycle of unsustainable debt. You should also make sure that you don’t wind up paying more in interest on your mortgage than any interest you would pay using the cash to pay off other debts.
It’s no secret that your credit score plays a huge role in the mortgage loan terms that you are offered. Typically, the higher your credit score, the lower the interest rate you’ll have to pay on your mortgage. If your credit score has improved substantially, it may be time to shop your mortgage around. Refinancing your mortgage to get better terms could end up saving you thousands over the lifespan of the loan.
At Reali, we offer honest and efficient home loans. We give you total transparency — and lower costs. Start your application online and move at your own pace with convenient 24/7 access. Our online rate quote experience helps you price out the scenario that will work the best for your financial situation. We’ve also built technology that evaluates your loan application quickly and identifies any key missing items on day one, so we can get your loan funded with no headaches.