How to Decide When You Should Refinance Your Mortgage

Interest rates on home loans are at or close to all-time lows, but if you’re not in the market to purchase a home right now, it might seem like that news doesn’t impact you. However, for any homeowner with a higher interest rate on their mortgage, now might be the perfect time to take advantage of the low rates with a refinance. The key is to refinance only if it makes sense in your specific situation, which won’t always be the case, so how do you know when it’s the right time? Here are a few things to consider when you’re deciding.

Current Interest Rate

The most logical reason to refinance your mortgage in Utah is to lower your interest rate, or to go from an adjustable rate that fluctuates or even increases over time to a fixed rate that will remain low. Take a look at what your current rates are and talk to a lender about whether or not you would save enough money by refinancing to make it worth your while. While there are no hard-and-fast rules about exactly what the interest rates should be to consider refinancing, a lender can help you calculate your estimated monthly savings to find out how much you can save.

PMI

If you didn’t have 20% to put as a down payment on your loan when you initially got your mortgage, you are paying a monthly premium for mortgage insurance, or PMI. If home values have increased and you have paid down some of your initial loan, you may be able to refinance and have 20% equity or more, which would eliminate your PMI. That, combined with the low rates, could save you hundreds on your monthly mortgage payments.

Loan Maturation

If you are in year 25 of a 30-year mortgage, refinancing could actually be counterproductive, because the majority of your payment is going toward principle instead of interest. Even if you refinance for a shorter loan period, you will once again be paying more toward interest for a while. However, if your current interest rate is high enough, the monthly savings from a new loan may offset the downside of getting a new loan.

Cash Flow

Another consideration is whether you need (or want) some cash. Many homeowners refinance as an option to turn a home’s equity into cash to pay down debts with higher interest rates, pay for kids’ college education, or remodel or add on to your home.

Understand the Costs and Benefits

Most refinance options do come with fees such as appraisals, credit checks, origination fees and closing costs; these usually add up to about 2% to 6% of the total loan amount, so if you won’t achieve substantial savings from the refinance, it might not be worth the added costs.

The easiest way to find out if now is the right time for a refinance is to talk to an expert at Integrity First Lending. Our goal is a stress-free experience to help you refinance when it’s the right time.