Should you refinance?
With Mortgage interest rates being extremely low, now is a great time for many people to refinance, but what are factors to consider before refinancing a mortgage? Is refinancing right for you?
Know your interest rate:
Before considering a refinance, find out what your current mortgage interest rate is and compare it to current rates. If your rate is higher than current offerings then you may be a prime candidate to refinance your mortgage and start saving monthly. But in the case that you already have a low rate, it may be in your best interest to stay with what you have for now.
Lower it or get rid of it. The Federal Housing Administration (FHA) recently announced a reduction in Mortgage Insurance by half a percent. While that may not seem like a big deal, it could save the average person over $900 a year! With an FHA Streamline Refinance, there is no appraisal required and no money required at closing. If you have enough equity in your home, you may also qualify to refinance an FHA mortgage to a conventional mortgage and eliminate Mortgage Insurance all together!. This could potentially save borrowers thousands.
Get cash to help with projects:
A cash-out refinance could help you with projects like finishing a basement. When you have equity built in your home, sometimes you can refinance and borrow against that equity and use the money for home improvement projects, buying a car or for many other reasons.
When is refinancing not a good idea?
There are various times when refinancing your mortgage is not in your best interest. For instance if the costs of refinancing outweigh the benefits of a refinance or if your current interest rate is already very low a refinance is not a good idea. If you are planning on moving right away or in the near future a refinance is not recommended. Sometimes a refinance is not possible based on individual situations, you should talk to a loan officer to determine if refinancing is right for you.
What type of refinancing programs are available?
There are many different refinance loan programs available for borrowers, determining the right one depends on your individual situation and current home loan. Most often people refinance to reduce monthly payments or mortgage insurance, or to take money out for various projects. Some people also choose to refinance to change the timeline of their loan, reducing their current mortgage from a 30 year to a 15 year mortgage.
Available loan types:
- FHA Streamline
- VA Streamlines
- Conventional Rate and Term (Shortening the term of the loan)
- Conventional Cash Out
- Conventional Consolidation
Source: Freddie Mac, FHA, My Mortgage Insider