Why it’s Smart to Refinance Your Mortgage When Rates Are Low

house sitting next to money

With today’s historically low rates, refinancing your mortgage could give your budget a real boost. In fact, reducing the interest rate of your mortgage by just half a percentage point (0.50%) or more can have a huge impact on your monthly cash flow. Here’s why it’s financial smart to refinance your mortgage when rates are low.

What is a Mortgage Refinance?

Mortgage refinancing is essentially the process of taking out a new loan to pay off the remaining balance on your existing loan. Usually, borrowers refinance a mortgage to get a lower interest rate in an effort to lower the overall amount owed on the loan or lower their monthly payment.

Why Low Rates are Important

Reducing your interest rate has several advantages. It can help build more equity in your home sooner, decrease the amount of your monthly payment and save you a lot of money throughout the life of the loan.

For example, if you have a 30-year fixed-rate mortgage with an interest rate of 5.75% on a $200,000 home, your principal and interest payment would be $1,017.05. If you’d refinance that same loan at 4.50%, your monthly payment would drop to $894.03. With an extra $123 a month, you could end up saving $55,394.58 throughout the term of the loan. That’s why getting the lowest interest rate possible is so important.

Use our mortgage calculators to see if refinancing makes sense for you. Determine how much you can afford, compare loan options and calculate what your mortgage payment will be.

Other Reasons to Refinance Your Mortgage

Borrowers sometimes choose to refinance a mortgage because they want to finish paying it off sooner. If you have a mortgage with a high interest rate, refinancing with a lesser term and interest rate could help you pay off your loan in less time without changing your monthly payment much.

If you’ve built up at least 20% equity in your home, you can eliminate costly Private Mortgage Insurance (PMI). PMI is usually required if you made less than 20% of a down payment when you originally opened your mortgage loan.

Some borrowers choose to do a cash-out refinance. This is when you borrow more than you owe on your home and then use the extra cash to pay off debt, fund a home renovation or other major expense.

If you have any questions about refinancing your mortgage, we can help! Contact us for more information or apply online for your mortgage refinance.