Here are eight simple tips to help you make an informed decision.
1. One of the best reasons to refinance is to lower the interest rate on your existing loan. Historically, the rule of thumb suggests refinancing if you can reduce your interest rate by at least 2%. However, many lenders say 1% savings is enough of an incentive to refinance.
2. Reducing your interest rate not only helps you save money, but it also increases the rate at which you build equity in your home, and it can decrease the size of your monthly payment.
3. Refinancing can shorten the loan's term. When interest rates fall, homeowners sometimes have the opportunity to refinance an existing loan for another loan, that, without much change in the monthly payment, has a significantly shorter term.
4. If the current value of your home has recently risen and you find yourself with greater than 20% equity in the house, ask your lender if you are still required to carry mortgage insurance.
5. Many homeowners refinance to consolidate their debt. At face value, replacing high-interest debt with a low-interest mortgage is a good idea. We recommend that you discuss your debt consolidation strategies with a financial professional to determine if this is the right option for you.
6. A serious financial emergency can be another reason to refinance. If that is the case, carefully research all your options before you take this step. If you do a cash-out refinance, you may be charged a higher interest rate on the new mortgage than for a rate-and-term refinance.
7. Refinancing can be a great financial move if it reduces your mortgage payment, shortens the term of your loan, or helps you build equity more quickly. When used carefully, it can also be a valuable tool for bringing debt under control. Before you refinance, take a careful look at your financial situation and ask yourself: How long do I plan to continue living in the house? How much money will I save by refinancing?
8. Going from a 30-year fixed to a 15-year fixed mortgage loan provides you with a lower interest rate, which allows you to pay more principal at an accelerated rate.
We understand that this information can get confusing. If you have questions about refinancing your current home loan, please contact one of our experienced First Security Bank Real Estate Loan Officers. Click here.