You’re sure you found the right house and the right mortgage to get you into it, but that was three years ago. Rates have dropped by almost 1% since then, and you know you can get a better deal. You just aren’t sure when is a good time to refinance your home and what might be involved.
Keep reading to have all your home refinancing questions answered.
Refinancing a Mortgage to Secure a Lower Interest Rate
It’s a wise move to refinance if you could reduce your interest rate by at least 2%. Review your lender’s rates for refinancing and see if they’re lower than your current rate. If you can shave off at least 1%, it’s probably worth the cost of refinancing.
You’ll save money on interest payments, and it will be easier to pay off your loan faster. Using a mortgage calculator will help you determine how long it will take for you to pay off your new loan.
Refinancing to Shorten the Loan’s Term
If you’re considering paying off your mortgage earlier, you can refinance into a shorter-term loan. Your monthly mortgage payment will be higher, but you’ll be debt-free sooner.
Confirm that there are no changes to your property protection class before finalizing your decision.
Refinancing to Convert to an ARM or Fixed-Rate Mortgage
When you refinance an ARM, you get a new (and usually lower) mortgage loan to replace your existing one. You can exchange unpredictable variable rates for a stable interest payment.You’ll save money on interest payments, and it will be easier to pay off your loan faster. Using a mortgage calculator will help you determine how long it will take for you to pay off your new loan.
Refinancing to Consolidate
You can also use refinancing to merge debt from other high-interest loans, such as credit cards. This will help you save money on interest while paying off your debts faster. If you have equity in your home, cash-out refinancing allows you to access a portion of it for consolidation.
How Does Refinancing a Home Work?
The approval process involves reaching out to your lender and going through three stages:
Once you complete the paperwork and hand over a check for your closing costs, you can enjoy your new mortgage.
How Much Does It Cost to Refinance?
Closing costs, which include points and other fees paid to the lender at closing, amount to 2%–5% of a loan’s principal. So if you borrow $200,000, then refinancing can equal up to $10,000.
When Is a Good Time to Refinance Your Home?
Now, you know when is a good time to refinance your home.
By refinancing, you’re essentially taking out a new mortgage with more favorable terms. This gives you an opportunity to score a lower interest rate and monthly payment. In turn, this might save you thousands of dollars in interest over the life of your loan.
For more ways to save on your dream home, visit our finance blogs. You’ll find everything from tips on improving your credit score to creative ways to pay closing costs.