3 reasons to refinance
Refinancing your mortgage can be a smart move, but it's not for everyone. Consider rates, options and your plans before deciding.
Keep costs in mind
Refinancing comes with associated costs, and sometimes a lower interest rate can end up costing you more in the long run.
Reasons to consider
Consider the following as you decide whether to refinance your mortgage:
1. Interest Rates
- Compare your existing rate with what's being offered today. Then calculate your projected savings from refinancing. As a rule of thumb, if you can lower your annual percentage rate by more than 1%, it's worth thinking about refinancing.
- The larger the amount you owe, the more you'll save, because interest is a percentage of the total. For example, 1% of $500,000 would create more of a financial impact on you than 1% of $100,000, especially over the course of many years.
2. Better Mortgage Options
- Consider which type of mortgage would give you a better deal as compared with your current situation.
- For example, if you have an adjustable-rate mortgage (ARM) and your interest rate is about to rise, it may be to your advantage to refinance to a fixed-rate mortgage. With a fixed-rate mortgage, your monthly rate is predictable, because even if market interest rates rise, your mortgage remains the same for the life of your loan.
3. Your Plans
- The length of your mortgage term depends on your situation. Would you rather pay less in interest and pay the mortgage off more quickly? If so, a 15-year term might be for you. You'll have a higher monthly payment, but you'll pay less overall. With a 30-year mortgage, you'll have a lower monthly payment and more available cash each month, but you'll pay more overall than with a 15-year mortgage.
- Either way, your long-term financial plans should guide your decision. If refinancing is part of your short-term plan, you'll at least want to keep that mortgage long enough to cover your closing costs.
Keep it up. You're getting smarter about home buying.
Will I benefit from refinancing?
Weigh the benefits versus the costs and see if refinancing is right for you.
When should I refinance?
Make sure you're refinancing at the best possible time by asking yourself a few questions.
What is cash-out refinancing?
Learn about the refinancing option that allows you to take the difference between your old and new mortgage in cash.
Benefits of refinancing to a Veterans Administration loan
Veterans Administration (VA) mortgages are among the primary perks of military service, and the benefits don't stop when it's time to refinance.