As a homeowner, you may find that your home loan needs change over time. Interest rate fluctuations and available loan programs often leave homeowners asking themselves, “When should I refinance?
The decision to refinance depends on your current financial situation and long-term goals. Motives for refinancing can vary from reducing a monthly payment to capturing the equity in a home and using that equity for improvements or leveraging it to tackle other debts.
What is refinancing?
Refinancing is the act of replacing one home loan with a new loan that may feature more favorable terms. This may include a lower interest rate, lower monthly payments, or “cashing out” some of the equity built up in a home if the value has increased since the initial purchase.
Building the case for a refinance really depends on the type of loan you currently have and what you’re trying to achieve. Evaluate which of the three types of loans you have below to help determine if refinancing makes sense for you.
If you’re unsure whether you should refinance your fixed-rate loan, ask yourself these three questions:
Is the current interest rate at least two points below the rate on your fixed-rate loan?
Is your current 30-year loan less than 10 years old?
Do you plan to stay in your home for a while?
If you answered yes, it might be time to consider your refinancing options.
Some homeowners who have an adjustable-rate mortgage (ARM) should consider refinancing to a fixed-loan rate when the ARM reaches at least two points above their original rate. If you qualify, you could lower your monthly payment with a fixed-rate loan that will not change over time and could save you money.
Tapping home equity: “cash-out”
If the value of your home has increased and/or you’ve paid enough of your loan down to have positive equity, you can use refinancing as an opportunity to cash out some of that equity. Many homeowners use this to pay off other debts such as car loans, credit cards, student loans, etc. It can also be a great option for financing home improvement projects. (Consult your financial advisor on the consolidation of short-term debt into long-term debt.)
If refinancing makes sense, Evergreen Home Loans TM has a step-by-step guide for a successful mortgage refinance process. For further assistance, contact a home loan officer; from there, we’ll help you determine a solution that makes sense for your homeownership needs.
Are you interested in the advantages of refinancing? After a few years of home ownership, it may be worthwhile to review your current mortgage to determine whether a refinance would better meet your financial objectives.
Reviewing your overall financial plan is a wise first step when deciding whether or not a refinance makes sense for you. This will enable you to decide which refinance option best suits your needs. You may have the following financial objectives, and refinancing can help you reach them:
Are there any planned or unforeseen expenses? You might be able to get financing through your home equity! By making monthly mortgage payments, you may have built up some equity. A cash-out refinance enables you to access that equity and convert it into a lump sum of cash. This refinance option is a great choice if you have a big budget item planned, like a home remodel or significant home repairs, because the money can be used however you see fit.
If you want to cut back on your monthly spending, refinancing to a lower interest rate might be helpful. Your monthly mortgage payment may be reduced if you refinance to a lower interest rate, saving you money each month. Additionally, if you paid less than 20% of the purchase price for your home and must pay monthly mortgage insurance (MI), refinancing may give you the option to do so, which could lower your monthly payment.
Over the course of your loan, you could potentially save thousands of dollars by shortening the mortgage’s term and paying it off sooner. Your monthly payment may go up if you refinance to a shorter term, but your interest rate is likely to be lower, and you’ll end up paying less in interest over time. Additionally, if you currently include mortgage insurance in your mortgage payment, you might be able to have it eliminated, which would result in even greater cost savings over the course of your loan.
We would be happy to put you in touch with one of our knowledgeable loan officers if you have any questions about how refinancing your mortgage might help you achieve your financial objectives. In order to determine whether a refinance makes sense for you, they can respond to your inquiries and give you a complimentary review of your current mortgage.
What homeowners should know about the new adverse market refinance feeAccording to a Federal Housing Finance Agency (FHFA) announcement, certain refinance loan types may be subject to an adverse market refinance fee as of December 1, 2020. which may have an effect on some homeowners’ refinancing costs.
For the time being, all conventional, conforming mortgage refinances with loan balances over $125,000 will be subject to the adverse market refinance fee. A home loan that is at or below a certain loan amount is referred to as a conforming mortgage. This cap represents the lowest amount that Fannie Mae and Freddie Mac will purchase or guarantee a loan. Every year, the restrictions shift and vary by county.