Since you bought your house, have interest rates gone down? Are you much better off financially and with your credit than when you first got your mortgage? Looking for a way to lower your mortgage or loan payments each month? If any of these are true, it might be time to look into refinancing your mortgage.
A refinance mortgage, or "refi," is a loan taken out to pay off an existing loan and lower your monthly payments or the total amount of interest you'll pay. When interest rates go down a lot, refi loans become more popular. However, there may be good reasons for you to consider a refinance mortgage loan even if interest rates have stayed the same or gone up. How does refinancing your mortgage lower your monthly payments, and when should you think about it?
Let's say you got a mortgage loan from a local lender to buy your house. You got an interest rate that was a little bit higher than average because you didn't have a credit history and you only put down a small amount. After five years, the standard interest rates have gone down by almost 1%, which is almost 3 points less than the interest rate on your current mortgage. You've worked for the same company for seven years, lived in the same house for five years, and paid your mortgage and credit cards on time for a long time. You are in the best place to get a mortgage refinance because:
- Your credit score almost guarantees that you'll get the lowest interest rate on new loans.
- A change of three percentage points on your mortgage is a big deal. Most experts say you should think about refinancing if the new interest rate is at least 1 full percentage point lower than the one you have now. Even a small drop of half a percentage point in the APR can make a big difference in how much you pay each month.
- The interest rate on your first mortgage is higher than the market rate because of your finances at the time, which no longer apply.
You might also get a refinance loan if you want to cut the length of time you have to pay off your mortgage. If you took out a 30-year mortgage with an APR of 5.25 percent, refinancing it for 20 years at the same APR will save you a lot of money in the long run, even though your monthly payments will go up. Still, refinancing could be worth it if your finances are much better now than when you first got the mortgage.
When deciding whether or not to refinance your current mortgage, there are several things to think about. Most mortgages have penalties if you pay them off early. The new loan also has fees and closing costs that need to be taken into account. Before you decide if it makes sense to refinance your mortgage, you'll need to weigh all the costs of getting a new loan against the money you might save from a lower interest rate.
