With interest rates falling, homeowners are often tempted to refinance their current mortgage, hoping to take advantage of the lower rate and saving money. But the interest rate is only one factor in considering a refinance. It’s important to understand when it’s a financial good move and whether the cost of refinancing really does offer a savings. Here, we look at reasons to refinance and when, considering all the facts.
Exactly what is refinancing? Refinancing a mortgage is basically taking out a new mortgage and paying off the old one. The new mortgage will begin again for a full term, whether it is a 30 year mortgage or a 15 year one. No matter how many years you have been paying off your original mortgage, you will begin over again.
A mortgage refinance will also have costs associated with it, just as your original mortgage did. These costs can be from 3 percent to 6 percent of your mortgage so you will want to make sure that your interest rate “savings” will justify the upfront costs of the loan.
There are important reasons why you may choose to refinance your mortgage.
More Favorable Terms
If you have an adjustable-rate mortgage but want to lock in a low rate for future financial peace of mind, this is a perfect time to do that. Your adjustable-rate mortgage will follow the market. Right now it may be favorable but this may not always be the case. By refinancing for a fixed-rate mortgage, you get the benefit of today’s lower rates for the future life of the loan.
Lower Monthly Payments
If your mortgage is a decade old, you may have an interest rate that is substantially higher than today’s rates. Refinancing at today’s low interest rates can reduce your monthly payment substantially and can help your monthly cash flow.
Shortening Amortization Period
If you currently have a 30-year mortgage, refinancing your mortgage for a 15-year mortgage will enable you to pay off your mortgage earlier.
Making Use of Equity
If you have equity in your home, you may wish to refinance to use that cash for something else. If you want to consolidate debt that is currently at high rates of interest or make important renovations to your home, refinancing your mortgage to make use of your equity may make financial sense.
Paying off a Loan That is Due
If you have a current loan that needs to be paid off, it makes sense to refinance. Balloon mortgages and business loans fall into these categories.
Get Professional Advice
When considering a mortgage refinance, it’s important to weigh the benefits against the drawbacks. Working with a professional mortgage broker can help you decide whether refinancing your home is a financially viable idea. A good broker will help you understand your options and offer advice about choosing the correct loan terms and options. If you are considering a mortgage refinance, give our refinancing experts at Liberty Capital Services a call at (614) 505-0620.