If you believe that the rate on your current mortgage is too high, then a refinance may be in order. A loan refinance or refi will save you money by either lowering your monthly payment or reducing the length of your loan and may even do both!
Refinancing your mortgage involves the creation of another mortgage to pay off your previous one, and is often used to change the length of the mortgage and convert between a fixed and variable rate on mortgages; resulting in a decrease in the interest rate, and by extension, your payment.
Take a look at your options
Firstly, to ensure that a refi is right for you, you’ll want to look at how much you’ve already paid on your loan and how much is left for your new loan to pay off. Even a loan with less than a couple of years may be worth refinancing.
Though it may be tempting to set a refi at another 30-year full term with a lower interest rate, remember that the longer the term is the more money you will end up paying. However, a 30-year term may reduce your monthly obligation. This option can also provide the flexibility to pay more monthly should you have extra funds in hand. You can pay down the principal balance and pay off the loan sooner than the 30 year term.
If you currently have a 30-year term mortgage, it is wise to look into a 15-year or 10-year term mortgage. Shorter mortgage terms means paying off the loan faster, hence, lower overall interest payments.
If you currently have an Adjustable Rate Mortgage, it is possible to either refinance into a new Adjustable Rate Mortgage, or change to a Fixed Rate Mortgage. If you plan to keep your home long term fix the rate to keep your mortgage payment low and to have peace of mind as the interest rates are going up.
Factors that affect rates
To be successful in refinancing be wary of: your credit score, the amount of remaining debt in your mortgage, and the US economy.
Refinancing with a below-average credit score can be very difficult. The same can be said if you’re in too much debt, as this can simultaneously adversely affect your credit score and will raise your interest rate.
Lastly, the 10-year US Treasury Bond commands the rate in both variable and fixed rate mortgages, so timing and choosing your mortgage type is also a big contributor to your refi.
A successful refinance reduces both your term and your interest rate, and greatly decreases the amount you pay compared to your previous mortgage.
Don’t forget to review different rates and options when applying for a refi, as these options may have closing costs due at closing or add to your current principal balance
I specialize in options where the lender pays your closing costs. Call me to discuss what works in your favor.