By Chris Reh
If you've been listening to the radio, following the news, or even just talking to friends and family, you may have heard that mortgage rates are at an all-time low and that maybe it is the right time for you to refinance your current home mortgage, if you have one. But, though the interest rate is important to your mortgage, it is not all about the interest rate. Let’s talk about how the refinance works, and then you can decide if it is indeed the right move for you right now
The way a refinance works
When you refinance any type of mortgage loan, you are exchanging an existing loan for a new one. The new loan pays off the current mortgage and then becomes your mortgage moving forward. The goal of refinancing could be to switch from one loan type to another loan type, or to improve your mortgage situation by securing a lower rate and or lowering your monthly obligation/payment.
For example, let’s say you have a 30-year fixed mortgage with a 4% interest rate and you’re able to refinance to a 3% interest rate, on that same 30-year term, you'll not only lower your monthly payment, you will also reduce and save a full interest point off of your overall loan term.
You will have closing costs and prepaid escrow fees at the time of closing. These can be rolled into your loan if you have enough equity to cover them. You get your full escrow balance refunded from your current mortgage that you are paying off after closing. You can also skip two months of payments, keeping additional money in your pocket to pay down some debt or make some home improvements. With enough equity, you may pull out cash for some debt consolidation and or home improvements.
You must do the math to determine the break even when deciding if a refinance is worth the cost. So, if you are looking at $4,000 in closing costs, but refinancing also lowers your monthly mortgage payment by $200. In that case, you'd need to stay in your home for 20 months just to break even. So will you be living there for longer than 20 months? If not, it might not make sense to refinance as the costs will outweigh the savings. Talk to your lender today to learn about your specific options.
Is it time to refinance your mortgage right now
Essentially, while it does make sense for some homeowners to refinance their mortgages right now, that doesn't apply across the board to all home owners. You need to think about you, your goals and your situation. Things such as how long do are planning to stay in the house, and is your credit score high enough to get that low competitive rate that you hear talked about every day, will determine whether a refinance is the right move for you. I welcome you to call me today for your free mortgage checkup so I can help get you the information you need to make this potentially life changing decision to refinance your current home mortgage.
For more information about the process or if you have any questions or comments regarding this article, please contact Chris Reh, NMLS# 1773185, at 314.420.3122 or creh@firstintegrity.com.
First Integrity Mortgage Services is licensed in Missouri, Illinois, Kansas, Arkansas, and California.