5 Signs You Should Refinance Your Mortgage
Most mortgages have 30-year terms, but many things can change over the decades. The typical homeowner experiences changes in their income, credit, and the value of their house. All of these factors can influence how you choose to repay your mortgage.
Most mortgages have 30-year terms, but many things can change over the decades. The typical homeowner experiences changes in their income, credit, and the value of their house. All of these factors can influence how you choose to repay your mortgage.
At the time you signed the paperwork, everything may have felt set in stone. But refinancing your mortgage helps you take advantage of the ability to renegotiate the rate and term of your loan. This can make it easier to make payments or help you to save more money in the long run.
Once you’ve been in your house for a few years, watch for these signs that you can benefit from opting to refinance your mortgage.
You Have a Higher Interest Rate Than the Current Market’s Average
The past few years have brought home mortgage rates to incredible lows. If you bought your house more than several years ago, then you may be paying too high of a rate for the current market.
Given the size of home loans today, lowering your interest rate by even one or two percentage points can make a huge difference in what you pay over time.
You Want a Lower House Payment
Getting a lower interest rate will naturally make the payment go down. Homeowners can also choose to extend the term of their loan. Moving from a 15-year loan to a 30-year loan helps spread out the cost of the loan.
You Have an Adjustable Rate Mortgage
At first, these types of mortgages have the benefit of helping homeowners start paying on their house with a low fixed rate. Eventually, the rates do go up, which can sometimes leave homebuyers an uncomfortable financial situation.
Many people choose to refinance for a fixed-rate mortgage that makes long-term payments more predictable.
It should also be noted that there are times when refinancing for an adjustable rate mortgage might make sense, such as if your current rate is very high.
You Need Cash to Cover Other Expenses
In most cases, it is best to let your home equity continue to build, but there are a few situations where a cash-out refinance loan is beneficial.
For instance, your home has likely increased in value over the years. If it is significant enough, then taking out cash from the home equity can help you pay down high-interest debt faster.
You Have a Government-Backed Loan With a High Interest Rate
An interest rate reduction refinance loan (IRRRL), or streamline refinance loan, is an option that lets you renegotiate the interest rate on a VA loan for a lower one.
The benefit of this type of refinancing for military members is that you don’t have to currently live in your home. This makes it ideal for people who are stationed in a different location but want to keep their first home.
The process of refinancing a mortgage is relatively straightforward. You’ll find that it feels a lot like what you went through to obtain your original home loan.
Keep in mind that being a responsible borrower helps you get the best interest rate possible. Your eligibility also depends upon you doing things, such as making your current house payments on time.
Acting when the conditions are right allows you to benefit from better rates or a more manageable term for paying off your house.