With interest rates doubling in the past year, you may think that it’s no longer a good time to refinance your mortgage. However, the truth is there may be some circumstances that make now a perfect time to switch into a new home loan. The best time to refinance will depend on your reasons for making the change.
When You Want to Pay Off Your Loan Faster
Sometimes refinancing is not about saving on a monthly basis, but for the longer term. If you want to be done paying off your mortgage earlier but aren’t sure you have the discipline to do it on your own, refinancing into a 10- or 15-year mortgage from your current 30-year loan can be a smart idea. The monthly payments will be higher, but they come with lower interest rates and by shortening the term, you will potentially save yourself tens of thousands of dollars over the course of the mortgage.
When You Want to Take Advantage of Your Equity
Most homeowners have more equity than they ever had, so if you have a big project coming up, even though interest rates are higher than they were last year, a cash-out refinance still may be the cheapest way to pay for that wedding, home renovation, or college tuition bill.
When You Want to Remove a Co-Borrower from the Loan
Refinancing is usually the only way to get a co-borrower off of your mortgage loan. Whether you are going through a divorce and need to take your ex-spouse off the title, or if you had your parents co-sign with you to allow you to qualify and now don’t need their help anymore, a refinance is the right solution for getting full control of your mortgage and homeownership.
When You Want to Get Out of an ARM Loan
Adjustable-rate mortgages can be helpful for first-time borrowers or those with poor credit to allow them to break into the housing market at lower interest rates. However, after the introductory period, those rates can then adjust higher along with market averages. In today’s climate, that could be scary as rates are increasing rapidly. Refinancing into a fixed-rate mortgage, even at rates higher than the original ARM rate, could be smart to lock in a predictable monthly payment.
When You Want to Save Money with a Lower Interest Rate
And yes, if market rates drop significantly below your mortgage rates, it is a great time to refinance to save money on interest. That is not the case today for most U.S. homebuyers, but it will happen again in the future for newer buyers.
It is important to remember that all mortgage loans, including refinance loans come with costs and fees. There will be things like appraisals, origination fees, and title searches to pay for. If you are refinancing to save money, make sure that you plan to stay in the house long enough to make the upfront fees worthwhile.
Anytime can be the best time to refinance, depending on your reason for refinancing. Now is specifically a great time to get a cash-out refinance to make use of your home equity or to switch out of an ARM loan.
Give us a call today if you think that a refinance loan may be a good idea for you.
These materials are not from HUD or FHA and were not approved by HUD or a government agency and in some cases a home equity or refinance loan might result in higher finance charges over the life of the loan.