When you first purchased your home, you took out a 30-year mortgage. While this may feel like an almost lifelong decision, the reality is that homeowners can often change their mortgage by refinancing.
with, you can take out a new loan to cover your old one, so you can essentially switch from the terms of your old mortgage to the terms of the new loan. If interest rates drop, for example, you may be able to refinance so you have a mortgage that reflects those lower rates. Or, you could be refinancing For example, instead of a 30-year one.
If you think you might benefit from refinancing, start exploring your options and eligibility here.
3 Smart Tips for Refinancing Your Mortgage
While refinancing may not always make sense there are many situations where you will come out ahead. Accordingly, it may be worth considering refinancing when:
When you can get a significantly lower interest rate
If you can get one Freddie Mac.This is significantly lower than your current mortgage rate, so you can save money by lowering your monthly payments and lowering your overall interest payments. However, mortgage refinancing comes with About $5,000, according to
Depending on factors like loan size, you may still come away with a small difference between your old interest rate and the new one. Or, you may decide to wait to see if rates drop in the future so you can save more. To find out, it’s best to do the math for yourself or with the help of a trusted professional to see what works for your situation.
Start checking interest rates here to determine if mortgage refinancing makes sense for you.
When you can drop your PMI
Another good time to refinance a mortgage can be if taking out a new loan leaves you. Generally, you must pay for PMI until your home equity level reaches 20%.
So, maybe you put 10% down initially to buy a home. Then, a real estate boom can increase the value of your home, which counts toward your home equity. By refinancing, you can then rise above that 20% threshold, as you won’t have to put as much down when calculating your home equity gain.
If you’re close to reaching 20% with a few more monthly payments on your current mortgage, the costs of refinancing may be worth it.
But if you can save the money that would otherwise go toward PMI payments over a longer period of time, especially if a new mortgage refinance loan has more attractive terms than your current mortgage, you may come out ahead by refinancing.
When you can reduce your loan tenure
If you find yourself in a position to refinance so you can shorten your loan term, it can pay off in the long run. Keep in mind that doing so often means your monthly payment goes up, but since you’re paying off the mortgage faster — say, in 15 years instead of 30 — it could mean paying less interest over the course of the loan.
Let’s say you get a raise and can make a higher monthly mortgage payment In that case, you may decide to pay off your mortgage early with a short-term refinance. The specifics, however, depend on factors like your current interest rate versus the mortgage refi rate.
Although these are general guidelines when it comes to understanding, they illustrate how refinancing can be financially advantageous for some homeowners. You can also get some peace of mind, like if you can refinance to a lower monthly payment that gives you more financial flexibility. Or, maybe you’d rather pay off your mortgage faster, so a shorter term works better for you.
Regardless, it might be worth itMay benefit you personally. Not everyone’s financial situation and goals are the same, but it may be best to explore your options and talk to a trusted professional to see if refinancing makes sense for you now.