Mortgage rates have hit record lows during the Coronavirus pandemic. And now, more than ever, everyone is taking a closer look and making adjustments to their budgets. With that in mind, you may be asking yourself—is now a good time to refinance your mortgage? If you’re trying to find ways to reduce your monthly expenses, consider these benefits of refinancing.
Lower Interest Rates
The opportunity to lower your interest rate is one of the main reasons people look into refinancing their mortgage. Most lenders believe even a 1% savings on your interest rate is enough reason to refinance. Reducing your interest rate can decrease your monthly mortgage payment, while also helping you build equity faster. Visit our website to learn more about our mortgage refinance options.
Shorter Loan Terms
Refinancing to a shorter loan term can help you pay off your loan sooner, and normally, your monthly mortgage payment will not have to change too much. The sooner you pay off your mortgage loan, the less interest you end up paying, and the more money you save in the long run.
Eliminate Private Mortgage Insurance
Private Mortgage Insurance (PMI) protects the lender if the borrower defaults on payments or in the event of foreclosure. PMI is usually required if you make a down payment of less then 20% when you first buy your home. Refinancing your mortgage could be an opportunity to get rid of PMI, if your new mortgage balance is below 80% of your home’s value.
According to Ginnie Mae and the Urban Institute, the average annual PMI payment ranges from .55% to 2.25% of the original loan amount each year. For example, if you have a $300,000 mortgage loan, your PMI could cost you between $138 to $563 per month. If you can eliminate PMI by refinancing, that could be a substantial savings each month.
Change from an Adjustable-Rate to a Fixed-Rate Mortgage
Another benefit to refinancing is to convert an existing adjustable rate mortgage (ARM) into a more traditional fixed-rate mortgage. ARMs expose you to potential rate increases. The opportunity to settle into a fixed-rate loan, especially when rates are low, is a smart idea.
A cash-out refinance replaces your current mortgage with a new mortgage for a larger amount than what you owe on your home. The difference is given to you in cash to spend on whatever you need.
Mortgage rates are typically lower than home equity loan rates, so if you’re considering home renovations, a cash-out refi could be a better option. Paying off high-interest credit card debt with a cash-out refi could also be beneficial. You could end up saving big money in interest over time. If you decide to use a cash-out refi to pay off credit card debt, make sure you don’t run up the balances on your credit cards again because it’s a bad financial habit you don’t want to repeat.
Keep in mind, your home is being used as collateral. Before choosing a cash-out refinance, be sure you can make your payments on time every month.
Still need help deciding if a mortgage refinance is right for you? Check out our free, online mortgage calculator to see if it’s a good time for you to refinance.