Refinancing your mortgage

Couple looking at paperwork for mortgage refinancing

Mortgage rates have fallen steadily over the last few months. Many homeowners refinance their mortgage to take advantage of a lower interest rate because of a change in finances, personal life or to save money. If you’re thinking of refinancing soon, it’s best to move quickly so you can lock in a lower rate. You might save money every month if you refinance a high-interest loan with a lower rate.  

Refinancing a mortgage is essentially paying off the remaining balance on an existing home loan and then taking out a new mortgage loan, usually at a lower interest rate. However, here are many factors to consider before moving forward with a refinance.  

Is a refinance right for you?   

This is an excellent time to consider refinancing if you meet these two criteria:  

  1. You have strong credit and you’d like to lower your monthly payments.  
    You will have a greater chance of getting a lower rate when taking out another mortgage. Undesirable credit can mean high interest rates when refinancing. 
    Also, a lower interest rate can also help you quickly build equity in your home.  

  1. You’d like to shorten the life of your loan.  
    Refinancing your mortgage can help you pay off your loan sooner. If you have a high-interest rate mortgage but you can easily meet these payments, refinancing into a shorter-term loan may be an option. You might pay off your loan in half the time without changing your monthly payment.  

However, a refinance may not be right for you under these circumstances: 

  1. You’re in debt.  
    Before looking for extra cash each month to pull you out of debt, long-lasting changes will need to be made to your spending habits. Most people who refinance for this reason usually spend the money they save and giving yourself extra money may place yourself back into your present situation. 

  1. A refinance will greatly lengthen the loan’s terms.  
    You won’t come out ahead if you have 10 years left on your mortgage and you refinance to stretch out those payments over 30 years. Any money you save on lower payments will be lost in the cost of the refinance and the extra 20 years of interest you’ll be paying on your mortgage.  

  1. You don’t plan on living in your home much longer.  
    If you plan on moving within the next few years, the costs of a refinance might cancel out any potential savings.  

How much will it cost?   

Homeowners are often eager to get started on a refinance until they see the costs. Be prepared to pay most of fees and closing costs again, just like when you first bought your house. Before you start the refinancing process, it’s a good idea to tally up these expenses and see how much it will cost to refinance. Broker fees will vary, but a typical refinance will cost anywhere between 3-6% of the loan’s principal.  

Make sure you’ll be saving money before proceeding with a refinance. Start by procuring a good faith estimate with one of our mortgage loan representatives. This will get you your projected interest rate and the anticipated loan price. Next, divide this price by the amount you’ll save each month with your anticipated new rate. This will give you the number of months that will have to pass before you break even on the new loan. You can also use our Mortgage Refinance Break Even Calculator  to see if refinancing is a good financial decision. 

Refinancing is a great way to save when rates are low. If you’re ready to talk to a home loan expert about refinancing and how you can save money, we are here to help you.