Refinancing is a word used frequently in the world of mortgages.
What is it? Is this an option for me? When should I? How can I?
These are all questions we ask ourselves as we explore mortgage decisions.
Deciding to refinance can help you save money on your mortgage, shifting your debt to a more favorable position.
What is Mortgage Refinancing
Refinancing means you are paying off your previous loan and replacing it with a new one. To refinance your loan, requires you to qualify for the loan as you did with the original mortgage. The process will be the same submitting an application, underwriting review and closing. Choosing to refinance can offer better terms, lowering your monthly payments and allowing you to pay off the loan sooner.
Why You Should Refinance
Refinancing can take time and seem like you are spinning your wheels, but this process has many benefits.
Reduces monthly payments with lower interest rates
Securing a lower rate can help lower the amount you spend in interest every month. Locking in a lower rate reduces monthly payments and helps put more money in your pocket for savings and other expenses.
Paying off loans faster
When refinancing you may be able to shorten the length of your loan. Sometimes payments may increase but you will be paying off the loan sooner, allowing you to become debt free much quicker.
You may have multiple debts amongst multiple lenders. Consolidating your debt with one lender, in one account, can help manage your payments easier. Examples of multiple debts can include home equity line of credit, auto loans and credit card debt.
When You Should Refinance
Refinancing is best when it makes financial sense to refinance. So, when should you start exploring refinancing?
When the rates are low
Mortgage rates are consistently changing throughout the day. If interest rates are down you may be able to secure a lower rate on your current loan. The general rule of thumb is said to be if mortgage rates are 1-2% lower than your current rate. However, it is always best to run the numbers through a mortgage calculator to calculate how much you are saving. This will help you determine a break-even point and make a better decision financially.
When your credit has improved
Your credit score is a leading factor determining the rates you will qualify for. If you have made consistent payments and your credit score has increased it may be time to re-evaluate refinancing options. A higher credit score can lead to lower interest rates with more favorable terms.
Keeping these key things in mind when exploring refinancing can help you decide when the time is right and help you set your financial goals.