The Right Decision? When to Refinance A good place to start when considering whether to refinance is to ask yourself several questions: - How long do I plan to stay in my home?
- Is the current mortgage interest rate more attractive than the one I have now?
- How much equity do I have in my home?
Your goal may be to take advantage of lower, fixed interest rates to reduce your monthly mortgage payments. Or you may want to build equity in your home faster by refinancing to a shorter-term mortgage. You may even want to "cash out" some equity in your home for home improvements, a new car, etc. Depending on your goals, refinancing might be able to achieve any or all of these things. - Adjustable to Fixed Rate
- Shorter Term for Equity Build-Up
- Equity Loans for Cash
- Locking in a Low Rate
No matter what your refinancing scenario, you can use our calculator to help you determine whether it's a good time to refinance. Adjustable to Fixed Rate One common type of refinancing is switching from an adjustable rate mortgage (ARM) to a fixed-rate mortgage. Mortgage payments with an ARM adjust with changes in the market rates, so when interest rates go up, monthly payments are also likely to rise. However, with a fixed-rate mortgage, interest rates stay the same for the entire term of the loan. The predictability that comes with locking in the same interest rate for as long as you live in your home is one reason why changing from an adjustable-rate mortgage to a fixed-rate loan is one of the more popular refinancing choices -- especially when interest rates are falling. Another reason occurs when people who took advantage of the traditionally lower interest rates in the first years of their ARM begin to see their monthly mortgage payments increasing. At that time, refinancing to a fixed-rate loan begins to look attractive. You should work with your lender to compare the financial index, margin, and any rate caps in your existing ARM with current market rates before you decide to refinance to another type of ARM. It is important to understand how often your mortgage will adjust and how much your payment can change with each adjustment over the life of the loan. You may be interested in changing from one kind of ARM to another or refinancing with the same kind of ARM to get a lower interest rate. Be sure to ask your current lender whether any conversion terms apply or if there are costs to convert to another type of mortgage. Shorter Term for Equity Build Up If you are currently in a 30-year term loan and feel your income has grown enough to make higher payments, refinancing to a 10- or 15-year term may save you significant interest payments over the life of your loan. Contrary to popular belief, a 15-year mortgage payment is not twice as much as a 30-year one. You may be surprised to learn just how small the difference really is in your monthly payment. And paying your house off 5 or 10 years early will go a long way toward making retirement an attainable goal! Check with your lender for more information. Equity Loans for Cash Another reason to refinance is to use the equity in your home to pay for a major purchase or a child's education. You've been building equity in your home since you first started making monthly mortgage payments. Part of your payment was used to pay principal -- helping you build equity -- and the rest was used to pay such items as interest and taxes and insurance. Often referred to as a "cash-out" refinance, drawing on the equity in your home provides an easy way to get cash you may need for other purposes.Locking in a Low Rate Mortgage rates can't remain at these historically low rates for much longer! In an unpredictable economy, the rates will undoubtedly rise. If you are a homeowner, now may be the perfect time to refinance and lock in a low long-term rate that can shave significant dollars from your current monthly payment.
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