When is the Right Time to Refinance Your Mortgage?

Mortgage rates are still low and have been holding steady. This usually means it’s a good time to refinance your mortgage, but refinancing isn’t for everyone.

Most people will refinance to save money and almost always, a lower rate means lower monthly payments or paying off your home faster (a definite bonus if you’re in your “forever home”). Of course, a lower rate also means you’re spending less on your home overall.

Another reason you may consider refinancing is to cash out on your home’s equity. In simple terms, a cash-out refinance is used to borrow MORE money than what you currently owe on your home. This cash is typically used in situations where you want to consolidate other debts or make improvements on your home. Usually, cash-out amounts are limited to 80-90% of the home’s equity or current market value.

Lastly, another major reason to consider refinancing is to change the terms and mortgage type of your current mortgage, such as wanting to switch from an FHA to conventional financing to drop the permanent PMI. You may also want to refinance to shorten you’re a loan term length or amortization period to pay your house down quicker. When shortening your amortization period, it’s important to understand that this may also raise your monthly mortgage bill, unless you have money to put towards a down-payment to lower the cost.

Having understood all the reasons you may want to refinance, you should also understand that comes with expenses you may not recoup is you don’t plan to be in your home very long. Remember those closing costs you paid to buy your current home? You pay them again, because refinancing your mortgage means you are replacing your old mortgage with a new one. Other possible costs involved include:

• Application fee
• Appraisal fee
• Loan origination fee
• Title search fee
• Inspection fee

The average closing costs are 2% to 5% of the purchase or refinance price. That could amount to several thousand dollars, however, if you’re saving thousands more, you could still benefit from refinancing.

It really depends on your goals for refinancing. Our loan officers would be happy to run the numbers for you to see if now is the right time to refinance your mortgage. Use our online form to get in touch with us for assistance.