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  • Writer's pictureDavid Cade

Is It Time To Refinance My Mortgage?

When it comes to money, there are a lot of difficult decisions to make, refinancing your mortgage doesn’t have to be a difficult one. So how do you determine if a refinance is right for you? Generally, if refinancing will save you money, help you build equity and pay off your mortgage faster, it’s a good decision. There are many ways to refinance your mortgage. Finding the right one depends on what your goals are.

Lower my interest rate

Lowering your interest rate is the primary reason most homeowners refinance their current mortgage loan. When done correctly you can save yourself a considerable amount of money on your mortgage payment. It can also save you thousands in interest over the life of your loan.

Consolidate Debt

Homeowners refinance to pay off debt, such as high interest rate credit cards, personal loans, student loans. Consolidating debt gives you the ability to make a lower interest payment over a certain amount of time, rather than paying a higher rate on revolving balances. Just be careful not to go on a spending spree because you still haven’t paid off the debt, you’ve merely transferred it.

Changing your Mortgage Type – ARM to Fixed Rate

If you are like many homeowners that chose an ARM (Adjustable Rate Mortgage) then refinancing to a fixed rate mortgage can be the right choice. If you currently have an ARM that offered a low introductory rate, but the rate is about to increase you can ultimately improve your loan but simply switching to a fixed rate. Moving to a fixed rate you will be able to lock in a rate that doesn’t adjust as well as having a consistent monthly payment.

Shortening your loan term

Deciding to shorten your loan has several benefits. Typically, a more attractive interest rate and shorter term can significantly reduce the amount of interest paid over the life of your loan. Homeowners may also be able to refinance to a shorter term that has roughly the same monthly payment but a shorter amortization, allowing you to pay off the mortgage faster.

Remove Private Mortgage Insurance (PMI)

PMI is required insurance on a mortgage if your down payment is less than 20 percent and a single loan is used to finance the property. When you refinance and the LTV (Loan-To-Value) is 78 percent or less you will avoid PMI, this can save hundreds of dollars each month on your mortgage payment.

Your credit score has improved

Since you purchased your home your credit score has went up. You have

a good history of making your mortgage payments and other bills on time. You're in a much better position to refinance. Your credit score will affect the interest rate, LTV, and programs available to you.

When a refinance is done correctly it can save you money on long term interest but refinancing frequently without considering the long-term effects can result in an expensive mistake. Simply refinancing to purchase consumer goods and repeatedly running up your consumer debt can have disastrous effects on your home’s equity and your pocket.



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