You work hard every month to make your mortgage payment. But is your mortgage working for you? It just might be time to consider refinancing.
Refinancing means you’re swapping your existing mortgage loan for another. And since there typically are fees involved with refinancing, you’ll need to recognize a benefit — one that saves you money each month on your payment or puts money in your pocket.
What are the financial signs it’s time to refinance your home? Read on to find out.
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Lower Interest Rate
As of Oct. 20, rates on a 30-year mortgage averaged 3.18%. If you’re paying more than that, it’s worth looking into refinancing.
“Yes, there will likely be closing costs, but if you find you can lower your mortgage by 0.5% or more, you could potentially save hundreds of dollars per month or tens of thousands of dollars over the lifetime of your mortgage,” said David Friedman, the co-founder and CEO of Knox Financial.
How much money could you save?
The principal and interest due in a 30-year, $300,000 mortgage taken out at 3.18% APR is $1,294 per month. If you’re paying 4.5% APR, the total is $1,520 — a difference of $226. Refinance 10 years into your mortgage? You’ll save $54,240 over the next 20 years.
“Interest rates have been dropping for some time now, and current logic suggests that they might increase soon. If homeowners haven’t taken advantage of these low rates by refinancing their loan, it might be the right time to do so,” said Jeff Zhou, the co-founder and CEO of Fig Loans.
Replace an Adjustable-Rate Mortgage
If you took out an attractive adjustable-rate mortgage (ARM) when you bought your home and it’s nearing the time to adjust — and trigger an increased interest rate — consider refinancing.
“If you have had an adjustable-rate mortgage and getting worried about the future rise in rates, moving to a fixed-rate mortgage may be a good idea,” said Shashank Shekhar, the founder of InstaMortgage. “This is recommended if you plan to keep the mortgage for a very long time. Since the FRM rate is at a very low level, locking in a low fixed rate for the life of the loan gives you peace of mind and a good night’s sleep.”