Situations When It Makes Sense To Refinance Your Mortgage

Situations When It Makes Sense To Refinance Your Mortgage

If your current mortgage is coming to an end, now may be the time to consider refinancing.

Refinancing, also referred to as a refinance or home refinance, is when you take out a new loan against your existing home. This allows you to take advantage of lower mortgage rates and potentially save money over the life of your loan.

Here are a few situations when it makes sense to refinance your mortgage: Mortgage rates have fallen:

For homeowners mortgage rates can vary since they are affected by different factors, including U.S. Federal Reserve monetary policy, market actions, inflation, the economy and global factors.

If you’re paying a higher interest rate than the market average, you could save money by refinancing. When should you consider refinancing? A good rule of thumb: Refinance if your rate is 1% to 2% lower than your current rate.

You wish a shorter loan term:

Consider refinancing your mortgage to a shorter loan term if you are looking to pay off debt. This will help you save money in two ways: First, if your new interest rate is lower than your current rate, you can increase the amount of money you set aside for savings. Second, the shorter the loan term, the less interest you will pay overall.

Your home value has increased:

If your home has appreciated in value, refinancing might be a good option for you. You can take out a new mortgage, larger than your original mortgage, and receive the difference in cash.

You wish to convert from an adjustable rate to fixed:

If you currently have an ARM—or adjustable-rate mortgage — and interest rates are on the rise, you might want to consider refinancing and converting to a fixed-rate mortgage. An ARM will increase along with interest rates, so a fixed-rate mortgage could provide some peace of mind knowing that your payments won’t change for the life of the loan.

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