Is mortgage refinance for you? That’s a question many homeowners ask themselves. Refinancing your mortgage is a big financial decision that takes some careful consideration. People refinance for different reasons. They may need to try to lower their monthly payments to better fit their budget. They may want to change from an adjustable to a fixed rate mortgage or they may just see a much lower interest rate that can save them a bundle.
Mortgage refi does not come without a cost though. There are usually appraisal and other fees in addition to closing costs since you are basically getting a completely new mortgage. You may even be faced with a prepayment penalty from your current lender. All food for thought.
6 Reasons to Refinance Your Mortgage
- To lower your mortgage interest rate. The opportunity to lower an existing interest rate is one of the top reasons that people refinance their mortgage loans. Lowering your mortgage interest rate can lower your monthly payment and really save you on interest over time. This is true if you don’t lengthen the term when financing. Lengthening the term significantly can counteract the lower interest rate.
- To convert an adjustable rate to a fixed rate mortgage loan. With today’s low mortgage rates, a change to a fixed rate mortgage could be a smart move. Locking in a low-interest rate mortgage can also provide the borrower with the peace of mind of a predictable monthly payment.
- Changing your loan term. A change in the term is another reason many homeowners refinance their mortgage loans. Lowering your term can help you pay off your mortgage loan faster and save on total interest paid. If your financial situation changes and you are able to afford higher monthly mortgage payments, then refinancing to a shorter term can really benefit you. On the other hand, if you find your financial situation has worsened, and you are struggling to afford your mortgage payments, lengthening the term can help make it more affordable. Refinancing to lengthen a mortgage loan term is not for everyone though. You are taking longer to pay off your mortgage, so you will be paying more in interest over time. If you are able to secure a lower interest rate when refinancing to lengthen the term, it will help offset the interest paid.
- Changing to a different type of loan. Changing to a different type of loan, such as an FHA mortgage might be beneficial in some cases.
- An improvement in your credit score. A significant improvement in your credit score may qualify you for a much lower mortgage loan rate than you currently have.
- Refinancing to get some cash back. If you have a lot of equity in your home and are in need of some extra cash, cash-out refinancing is an option. Homeowners refinance for any number of things. To get some extra cash to pay down debt, fund another property, pay college tuition, pay off student debt, to make home improvements or even make large purchases.
Should you refinance your mortgage?
If the benefits outweigh the cost, then mortgage refi may be a great option depending on your goals. You will also need to consider any changes in your credit score, the amount of equity you have built up in your home, how long you plan on keeping your home and the total cost of refinancing. When shopping for a lender for a mortgage refinance, in addition to comparing mortgage rates, be sure to ask for all fees on paper. Ask for an explanation of these fees as well. You will usually have to pay for an appraisal, loan application, origination and processing fees, title search and more. Fees and costs may vary significantly from lender to lender. Make sure you know all costs up front and if you can afford them. Remember, the benefits also need to outweigh the cost. Be sure to shop around and include your local credit union in your comparison.
Refinancing with Choice One Community Credit Union, for instance, can provide you with low fixed rates and low closing costs. Depending on eligibility, a borrower may be able to finance up to 95% LTV (loan to value) for terms up to 30 years. Learn more online or at any Choice One Credit Union office.