When interest rates drop on home mortgages, many homeowners immediately start thinking about when the right time to refinance their home is. This is not a decision to rush into though since there are a lot of things to consider that help determine if home refinancing is right for you.
Home Refinancing Has Closing Costs
One thing to keep in mind about home refinancing is that it's not free. There are the same closing costs associated with refinancing that there were when you originally got your mortgage. Appraisals, underwriting fees, and origination costs will all still apply. This means you must weigh those costs against what you'll save and decide if it is worth it to refinance. Determine the break-even point on refinancing and ask yourself if you'll stay in the home long enough to break even.
Home Refinancing Can Lower Your Monthly Payment
The main reason that people want to refinance their home is to lower their monthly mortgage payments in order to make it more affordable. This means that a refinance may not even save you money over the course of the entire mortgage, but simply lower the cost of how much is paid each month. This is an option for people that have not made additional mortgage payments and cannot simply recast their mortgage, which is an alternative that can lower your monthly mortgage payment.
Home Refinancing Can Remove PMI
If you are currently paying private mortgage insurance (PMI) due to originally getting your loan with less than a 20% down payment, home refinancing can help reduce that payment. If your new loan meets the requirements that eliminate the need for PMI, which typically happens due to having equity that goes towards the new loan, then you can get rid of PMI for good. This can make refinancing very appealing, especially if you are getting a lower interest rate as well.
Home refinancing Allows For Shorter Terms
You do not need to refinance your home with the same terms as your original loan. This can allow you to turn a 30-year mortgage with 25 years remaining into a 15-year mortgage. Not only will you save money by paying less interest, you'll be able to pay off your mortgage faster too.
Interested in having your mortgage refinanced? Reach out to a home refinancing office in your area for more information, so you can determine if it will be the best choice for your home and finances.