For the last several years, mortgage interest rates have been at a record low which presents an opportunity for current homeowners to refinance. In a nutshell, a mortgage refinance occurs when you pay off your first mortgage with a new one that has better terms. Refinancing is one of our specialties at Atlantic Coast Mortgage, so here we’re sharing four reasons you should consider it.
Securing a lower interest rate is the most common reason to refinance. After all – why pay more interest than you have to? A lower rate can decrease your monthly payments and free up more cash for you to use on other things like travel or your child’s education.
Rates are still competitive with 30-year fixed-rate mortgages sitting just above 4%. However, interest may trend upward in the near future, so now’s the time to shop around. Use our mortgage calculator to find out how much a rate change can save you each month.
Your financial situation will probably change at some point during homeownership. Refinancing gives you the opportunity to adjust your loan terms to accommodate change.
If you’re locked into an adjustable-rate mortgage, you can refinance to a fixed-rate mortgage to limit future risk. And if you signed a 30-year mortgage but have the means to pay off your loan sooner, you can refinance to a shorter term with higher monthly payments.
Putting less than 20% down on a home is convenient if you can’t save a lump sum, but it also comes with one major drawback – private mortgage insurance. Fortunately, once you build up enough equity in your home you can refinance to get rid of your private mortgage insurance.
Do you have credit card debt to repay? Do you need funds to remodel your home? You may be able to tap into your home equity in what’s called a cash-out refinance.
In this scenario, you refinance the mortgage for more than you owe and pocket the difference. For example, say you need $50,000 to add an in-law suite to your home. Your total mortgage is $600,000 and your balance is $500,000. You can refinance $550,000 and cash-out the rest to pay for renovations.
Before jumping into a refinance, there are some factors to consider like closing costs of the new mortgage. Most often, the purpose of a refinance is to save money, so you need to make sure the savings outweighs the cost you pay out-of-pocket.
Here’s one example. Say you qualify for a lower interest rate that saves you $300 per month and closing will cost you $3,000. The refinance will pay for itself in 10 months. In this case, you’ll break-even fairly quickly. If you plan to stay in the home for the foreseeable future, it’s worthwhile to refinance.
Ultimately, each mortgage refinance situation is unique.
Interested in learning more about your mortgage options or prequalifying for a new home?