In early August, the rate for a 30-year fixed-rate mortgage averaged 3.75%. According to HousingWire, these low rates put 8.2 million mortgages in the “refi eligible” zone. Essentially, this means that refinancing will likely save money on the mortgage, despite the application and funding costs.
So, here’s the big question: Should you refinance your home? If you find yourself in any of these situations, you may want to consider a refinance—it could be well worth it!
The monthly savings are worth it
First things first: put in the effort and calculate your savings. Once you find out what your new rate will be, calculate your new monthly payment. Additionally, add up all of the costs that come with refinancing—credit check, appraisal, origination fees, and closing costs. Based off of your new monthly payment, not only can you see how dramatic your savings will be, you can also calculate how long it will take to recoup those refinancing costs. In some cases, your plans may not work with that timeline. For example, if you move before that time period ends, you’ll end up losing money on the refinance.
The loan term will shorten
Consider how long your new loan term will be compared to your current one. Refinancing at a lower interest rate can dramatically shorten the loan term while keeping the monthly payment at a similar amount. In some cases, the loan term may even be cut in half! Do the math and calculate how the loan will play out both if you were to cut your monthly payment and if you keep it at the same amount.
Your credit has improved since you got your mortgage
For some, a low credit score may have affected the interest rate they qualified for when they first applied for a mortgage. If you faced that issue and have since built up your credit, you should definitely look into what your new interest rate would be. You may qualify for much better rates!
It’s smart to switch to an Adjustable-Rate or Fixed-Rate mortgage
Keep an eye on mortgage rate trends. If you started with an ARM, you may have watched as your rate increased. Eventually, your rate may have increased enough to become higher than what’s available through a fixed-rate mortgage. In that scenario, switching to a fixed-rate mortgage will get you a lower interest rate that also removes the risk of the rate changing. The opposite might be true as well. Falling interest rates may spark you to switch from a fixed-rate mortgage to an ARM to reap the benefits of rates getting lower.
Should any of these scenarios apply to you, definitely take the time to explore your refinancing options! Carefully review your financial situation and speak to an experienced loan officer to gather as much information as possible before you take action. Ultimately, you could wind up saving money or finding yourself in an all-around better financial situation after a refinance!
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