Refinancing your mortgage essentially means paying off your existing loan and replacing it with a new one. Refinancing can mean a lower rate, a shorter loan term, or even the opportunity to tap into your home’s equity. While there are a variety of reasons to refinance as a homeowner, take the time to determine whether refinancing will offer a true benefit for your financial situation.
Your rate would be lower.
One of the best reasons to refinance your home is to take advantage of a lower interest rate. There isn’t an all-encompassing rule about how much a percentage change in interest rates should occur before you refinance, it all comes down to what’s right for you.
A 2% rate reduction with a mortgage refinance is more meaningful if you have a $300,000 mortgage rather than one that’s $100,000. Do the math and take advantage of helpful tools including a refinance calculator to determine whether the percentage change is worth refinancing to save you money.
You’re a better borrower.
Even if the rates haven’t changed, you may qualify for a lower rate if your credit score has improved since you initially took out the loan. Borrower credit scores play a huge role in securing a good mortgage rate. A score around 750 or higher on the FICO® scale is considered an excellent score. You don’t need to be perfect – any improvement may be beneficial to help you get a better interest rate.
If your score has improved greatly since opening the loan, it’s worth pursuing what your new rate would be and if it saves you money long-term. If your credit score isn’t up to par, take a few small steps to begin improving your credit score today.
Related post: 3 Ways to Improve Your Credit Score
You can reduce your term.
Refinancing your mortgage to lessen the term rate can reduce the total amount you pay in interest and allow you to pay off your loan faster. For example, if you have a 30-year mortgage with a high interest rate and refinance in 10 years to a 15-year mortgage at a lower rate, you can still make affordable monthly payments with a shorter term.
Your current financial situation matters when it comes to deciding whether to refinance. Refinancing can be great if it reduces your payment, shortens your loan’s term, or helps you improve your home’s equity. When done effectively, it can have immediate and long-lasting benefits to your financial health.
Not sure if refinancing is the right decision for you? Meet with one of our non-commissioned mortgage professionals to get the advice you need when it comes to refinancing your home.