Mortgage rates are down again to historic lows. So is this a good time to refinance your home mortgage? It might be. What should you consider when making this big decision? First, is the interest rate you get now lower than what you’re already paying? In addition to current rates, your credit score has a great impact on your rate. If you’ve been careful with your credit you may well qualify for better rate.
Are you making less money now than when you applied for your initial mortgage? Lenders don’t like to see mortgage payments making up more than 35% of your income. So if your income has decreased, you may not get a lower rate, or even qualify at all for a refinance.
Next, has the value of your home gone up? If so, you can often qualify for lower interest rates om a refinance. Also, if your borrowed more than 80% of your home’s value initially you are likely paying for Private Mortgage Insurance (PMI), which is added into your monthly mortgage payment. When you can refinance 80% or less of your current home value, you can avoid this extra monthly fee. Note tha t veterans with a VA loan or anyone with a USDA mortgage, these loans don’t require PMI.
Another benefit of refinancing when the value of your home is gone up, is that you may now qualify for a Home Equity Line of Credit (HELOC). A HELOC is a line of credit similar to a credit card. You get a preapproved, maximum credit amount you can borrow against your home. If you’re careful with your budget and spending a HELOC, can be an added safety tool after your emergency fund.
Also consider the term for paying back your new mortgage. If you’re tacking on another 30 years to years of payments you’ve already made, you may not be saving nearly as much as you hoped.
Refinance closing costs typically run 1 to 5 % of your mortgage’s principal. How much time is left on your current mortgage? Do you plan to move or think may sell your home in the next few years? You want to make sure you have enough years of lower interest savings to make up for those upfront fees and save you money overall.
If you like to explore your options on your own, there are some useful calculators available on the Internet. You can find one of these at https://www.bankrate.com/calculators/mortgages/refinance-calculator.aspx It’s usually worth at least doing enough research to make a rough comparison. You may be able to save thousands of total interest payments.
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