Reasons To Consider Refinancing A Mortgage With Today’s Low Rates
With loan rates dropping to all time lows, many people are wondering if refinancing their mortgage loan is a good idea. Obviously, there are many reasons to consider a home refinance, especially with home loan rates so low. Some of the reasons to consider a home refinance are lower monthly payment, lower interest rate, pull out extra cash, change loan term and go from an adjustable rate loan to a fixed rate loan.
Mortgage Rates At All Time Lows
Today’s market has caused mortgage rates to drop to historic lows making this a fantastic time to think about a home refinance. As long as there is a benefit to the new mortgage, now is a great time to refinance your home loan. There are many opportunities to save thousands of dollars in today’s mortgage rate environment and home loan rates will not stay at these levels forever.
Time to refinance and save money is now, but remember, it is very important that you have a reason to refinance along with a benefit for the new mortgage home loan. Below are some of the benefits to refinancing a mortgage loan.
Reduce Monthly Loan Payment
When considering refinancing your property to lower your monthly payment, you need to take into consideration how much your payment will reduce by. Most believe the payment must reduce by at least 5% in order for the refinance to have a benefit.
Lower Mortgage Loan Rate
Lowering your payment is greatly affected by the interest rate. If you refinance your home and lower the interest rate by at least 1%, then you will see a decrease in payment as well. Many people do not consider refinancing if the rate does not drop by at least 1%. Keep in mind, that even a small reduction in rate can have a major impact on the loan.
Cash Out Mortgage Loan Option
Many people will pull out cash during a refinance. The cash out home loans allow homeowners to refinance their existing mortgage loan and get extra cash that can go towards consolidating debt, home improvements or anything else the homeowner may want to use the funds for. Keep in mind that cash out home loans have a slightly higher rate and that a homeowner needs to take into consideration the overall financial picture. There are times that a cash out refinance mortgage could have a higher rate than the current mortgage, but the overall benefit for the mortgage could outweigh the higher rate. For example, if a person has a $100,000 mortgage loan at 5% with a payment at $750 and has over $10,000 in credit card debt paying $500 per month, by refinancing into a new loan at 5.25% with a payment of $1000 will save this person $250 a month.
Change in Loan Term
Some homeowners refinance their home to change the term of the loan. The most common change is to go from a 30-year mortgage to a 15-year note. The idea is to pay off the loan quicker and save more money over the lifetime of the loan. The payment could increase, but the benefit to this type of refinance is paying the property off sooner.
ARM to Fixed Rate Loan
Finally, another reason to consider refinancing is when you are taking an adjustable rate mortgage and refinancing into a fixed rate note. ARM loans can have a low rate, but the rate is variable and will change throughout the mortgage. ARM mortgages are configured for people who plan on only staying in the home for a short amount of time, usually 5-7 years. By refinancing into a fixed rate home loan, you are locking in the rate for the entire loan term.
There are some reasons to not refinance. If you are planning on selling your home in the next year or so, refinancing might not be the best option. You will have to consider the cost of refinancing and what the overall benefit will be.
With rates at all time lows, it’s crucial to talk with a home loan consultant and discuss your mortgage options to see if there is a benefit to a refinance home loan.
David White specializes in Home Loans. David is a Senior Home Loan Officer with over 12 years experience with refinance home loans.
