If you’re considering refinancing your mortgage, make sure you’re doing it for the right reasons. There’s a bunch of reasons to do so, but if the timing isn’t just right, then you may not be able to experience all of the many colorful benefits to mortgage refinancing.
The best way to know whether mortgage refinancing is right for you is to get up-close-and-personal with the benefits it’ll offer you. When you why people undergo the mortgage refinancing process, you’ll be in a great position to assess your current situation and decide whether refinancing your mortgage is the right decision for you and yours.
So, without further ado, here are the primary benefits of mortgage refinancing:
Better Mortgage Rates
Better mortgage rates are probably the most persuasive benefit a refinancing can offer homeowners. If mortgage and interest rates have dropped since you first took out your loan, or if your credit score has improved, then you can usually save yourself some money by refinancing your mortgage. This will give you a new home loan at the current (and lower) rates.
Here’s a helpful example from Investopedia: “a 30-year fixed-rate mortgage with an interest rate of 9% on a $100,000 home has a principal and interest payment of $804.62. That same loan at 4.5% reduces your payment to $506.69.” So you see, if you can secure a better rate, you’ll probably end up saving yourself money (sometimes a lot of money).
Lower Month-to-Month Payments
Another one of the benefits of mortgage refinancing is the lower monthly payments. And since refinancing usually gets you a lower interest rate, and lower interest rates can lead to lower monthly payments, you can effectively get two benefits of refinancing your mortgage for the price of one.
Lower month-to-month payments can be one of the best benefits you’ll experience as a result of refinancing your mortgage, as it allows you to set up a more flexible budget for yourself.
A Shorter Term
Most of the time, borrowers will start with a thirty-year loan, and then, when they’re ready, refinance it to a fifteen-year fixed-rate mortgage. With a shorter term, you can pay off the mortgage quicker and then save a lot of money in the long run.
To illustrate the benefits, here’s Investopedia with another example: “For a 30-year fixed-rate mortgage on a $100,000 home, refinancing from 9% to 5.5% can cut the term in half to 15 years with only a slight change in the monthly payment from $804.62 to $817.08.”
Change the Type of Mortgage You Have
If you used an adjustable-rate mortgage (ARM) for the lower introductory interest rates but decided a few years down the road that you’d rather have a more static payment schedule, you can refinance and get set up with a fixed-rate mortgage. While you could pay a little bit extra from month-to-month, your payments would always be the same, making it easier to plan your budget and predict expenses.
Should You Refinance Your Mortgage?
When considering whether or not you should refinance your mortgage, start by familiarizing yourself with the benefits of mortgage refinancing (like the ones we just talked through!), and then ask yourself two questions:
- How much longer are you planning on staying in your home?
- Will refinancing your mortgage reduce your interest rate by at least 2%?
If you’re planning on moving anytime soon, then now’s not the time to refinance a home. But if you know you’ll be sticking around for a while, and can get around a 2% decreased interest rate by refinancing (which Investopedia says is reason enough to go through with it), then it’s probably worthwhile to look into the mortgage refinancing process.
And with Poli Mortgage at your side, you can enjoy a refinancing program that requires no closing costs and very minimal preparation. Ready to learn more? Great! Get in touch with us today, and we’ll help you get the ball rolling.