It’s one of the questions we’re most often asked at Cliffco Mortgage Bankers: “Should I refinance my mortgage?” The answer isn’t the same for everybody. There are times when it makes financial sense to refinance a mortgage and there are also situations where you’ll end up paying out more than you should. The answer depends on each individual case.
Cliffco Will Help You Find the Right Loan
At Cliffco, we’re committed to helping people secure the right loan to finance a property purchase, but mortgage loans last a long time and your circumstances may change. That’s why it’s important to understand that refinancing might be a better option for you when your situation changes. We want to give you 5 reasons why you should refinance your loan and also let you know when refinancing may not be the best idea.
Take Advantage of Lower Rates
This is a very popular reason to refinance. The idea behind it is simple. If current interest rates are lower than the interest rates were when you took out the mortgage, you should consider refinancing. According to Investopedia, a good rule of thumb is that you should refinance if it can reduce your interest rate by two percent. But some lenders say even a one percent savings is worth refinancing. But keep in mind there are reasons not to refinance as well. Refinancing costs 3 to 6 percent of your loan’s principal according to Investopedia so you need to calculate your actual long term cost. Be careful if you’ve been paying the mortgage for a while or if you don’t plan to stay in the home a long time.
Change the Term of the Loan
Some people have the money available and want to pay off their mortgage loan as soon as possible. You can do that by shortening the term of the loan, usually from a 30-year loan to a 15-year loan. You’re able to lower the interest rates, but the monthly payment will be higher. Make sure you can afford it. Conversely, sometimes people want a lower monthly bill and are willing to lengthen the term of the loan. But you’ll be paying more interest, so make sure you’re actually saving money long term.
Switching from an Adjustable Rate to a Fixed Term Mortgage
According to Forbes, switching from an Adjustable Rate Mortgage (ARM) makes sense if you believe that interest rates are going to rise. A fixed rate mortgage can give you the peace of mind of knowing that you won’t have to worry about future interest rate hikes. Converting from fixed rate to an ARM is only a good idea if interest rates are falling and you don’t want to stay in the home too much longer.
You’ve Improved Your Credit Score
If your credit score has gone up since you’ve secured your original credit score, you might want to investigate what kind of rate you’d get if you refinance. According to Forbes, if you’re able to reduce a $300,000 mortgage by 1.5 percent, you can save about $250 a month.
If you have multiple mortgages, consolidating them into one loan can be a good idea, particularly if you can get a lower interest rate. Consolidating things like credit card debt into your mortgage can often be a dangerous idea. It’s only going to work if you keep a commitment not to overspend after the consolidation.
Talk to Cliffco if You’re Looking to Refinance
If you’re considering refinancing, Cliffco can help. Talk to us an we’ll help you crunch the numbers and explain your options. Contact us today.