When Should I Refinance?

21 August 2019
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Category: Real Estate
21 August 2019, Comments: 0

The temptation to refinance and increase your monthly budget is enticing. There are several benefits to refinancing your home loan – getting a lower interest rate, shorten the time left on your mortgage, or escaping the unpredictability of an adjustable-rate mortgage (ARM). 



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Refinancing requires a fee of up to 6% of the principal on the loan and can require the appraisal, titling, and application fees just like an original loan. With this in mind, when is it appropriate to refinance? When do the pros outweigh this con of extra effort? 


The best reason to refinance a mortgage is to save money on interest. While the recent announcement by the Federal Reserve has led many to investigate their options, it has little to do with the current low mortgage rates. The market has simply settled with rates averaging around 4.5%. This is great news for someone sitting with a 6% or higher mortgage rate!



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Experts suggest that a reduction of 1-2% makes refinancing worth the effort. A decrease in your interest rate means lower payments and speeding up your equity-building process. 


Another reason to consider refinancing, if you can qualify for these lower rates, is to procure a shorter-term loan. If your mortgage payments are manageable as they currently stand, you could shorten the term on your loan with a relatively similar payment. Paying a few dollars more a month could be worth finishing off your loan years earlier.


Most homeowners with an ARM are interested in getting out of the unpredictable rate adjustments inherent to such loans. While a downturn in rates can be a boon, the subsequent increase in mortgage rates can be disappointing and stress your budget. 



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Getting out of an ARM when rates are low is ideal. Rates are currently lower than they were several years ago and are unlikely to decrease much more. Switching to a fixed-rate at these low numbers can provide stability to your budget. 

If you are looking to refinance your mortgage, now is the time. Rates are relatively low and could go up in the coming year. Homeowners who want lower payments, faster payoff, or a fixed-rate should contact lenders and see what rate they can qualify for.

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