As a homeowner, you’re frequently given opportunities to refinance your home. Sometimes a simple inquiry online leads to an onslaught of communication from mortgage lenders you've never heard of. But the decision can be a hard one to make, and it’s based on more than interest rates. While mortgage brokers will hit you with messages to “strike while the iron is hot,” and assure you that rates won’t be this low again for decades, remember that the decision should be carefully considered. There are a few questions to answer that will help you determine if refinancing is the best financial step forward for you.
As you consider the decision ahead of you, remember to consult with your local bank to help you make the right decision at the right time for your family.
If you’re not planning to stay in your home very long, it may not be the right move to refinance, no matter how low the rates. The time you have left in your home should make the costs of refinancing worthwhile. Usually, refinancing costs between 4% and 8% of the loan amount. If the money you save per month from the refinance won't make up the cost of the refinancing fees before you move from your home, then the move is probably not financially worthwhile.
Do the math and discover the impact that a lower interest rate can have on your monthly mortgage payment. For instance, a 3.25% interest rate on a $200,000 mortgage will mean that you pay a total of $313,349 on your home over 30 years. The same mortgage amount with a 4.25% interest rate increases the total amount you pay for your home by nearly $41,000. One percentage point makes a big difference.
Sometimes being in a different financial situation can make refinancing the right move. Being able to pay more per month could give you a better interest rate. Switching from a 30-year mortgage to a 15-year mortgage could also give you better rates. The decision should be based on how much you're making, what you’re predicted income is going to be, and how much you expect to be able to dedicate toward a mortgage payment.
Homeowners who buy a house without 20% down are required to have PMI on their mortgage (which can cost you up to $1,000 a year). Because there is no down payment required with a refi, the equity you've built in your home counts toward a down payment. If you’ve built up enough equity in the home you’re refinancing, you may be able to take the PMI off of your mortgage. And while not paying for PMI is generally not enough of a motivation to singlehandedly decide on refinancing, it certainly provides an added benefit.
If you're ready to have a conversation about your mortgage payment and about the right steps forward with refinancing, start by applying for a loan with First Independent Bank. Our lending professionals are more than experts. They’re also neighbors and friends.