There are several reasons to refinance a home. Obtaining lower interest rates and reducing the monthly payment are only a few reasons people take this step. If you have been watching the interest rates and wondering if the time is right, here is what you need to know about this financial move.
Lower Interest Rates Save Money
If you financed during a time of high interest rates, then a lower rate will be a valuable money saver for you. A general rule of thumb is that your new interest rate should be at least a full point lower than your existing one in order to produce the cost savings you seek. If you can get a rate that is two or three percent lower, then you stand to save a small fortune over the life of the loan. To maximize the savings, choose a shorter term along with the lower rate. That way, your house will still be paid around the same time.
Reduced Monthly Payments are Attractive
Another great benefit is the ability to lower your monthly payments. A lower interest rate will reduce your payments, and spreading the balance out over a longer term will also cause your payments to drop. Whether this is a smart move depends largely on why you are taking it. If you have been in your home for fifteen years and just want a little more of a cushion each month, you might want to reconsider the decision to take a new 30 year mortgage. You will be doubling the length of time left to pay on the home, and you may regret that decision in 15 years. A better option would be to look for a 150-year product with lower interest rates.
However, if you need to lower your payments because your income levels have changed and you cannot afford the current mortgage, then a longer term is the right choice. It will allow you to stay in the home you love without struggling to make the mortgage. It is an especially attractive option if you are lowering the interest rate at the same time.
Making Valuable Home Improvements
If you are in the market for new siding, a new kitchen, or the roof is leaking, then you might be wondering how you will pay for these expensive renovations and repairs. A new mortgage presents you with the opportunity to tap some of the equity in your home. You can bump up the mortgage level slightly, get the funds you need, and possibly lower your interest rate at the same time. Choose the shortest mortgage term you can afford to still pay the loan off in a timely manner.
Finding the Right Loan
Mortgages are available through countless sources. Your credit union is usually a great place to start if you want to refinance your home. Talk to your local banker, and contact a mortgage broker who works with several lenders. Compare the loan products, as well as the closing costs and other fees involved. You will need to do some research, but it will improve your financial position over the coming years.
There are several good reasons to refinance your home. It’s important to read the fine print because excessive closing costs and fees can drive up your total loan costs. However, low interest rates are extremely attractive and can help you save money on the total loan while reducing your monthly payment. When considering a refinance, look at the shorter terms that are available to help you pay the loan off faster and save even more in the end.
Theresa Lowman blogs about home refinance. If you are looking for a mortgage, you might consider getting a loan through Net Loans.