Why should you refinance your mortgage?

The start of a new year can bring new challenges and new motivation. This can be a time to reflect on what is working and what isn’t. January is also a good time to take a closer look at your personal financial situation. This can include New money-saving strategies as well as methods Deduct existing debt.

For homeowners, its benefits may also be worth investigating Mortgage refinancing. Although interest rates are not as favorable as they were during the height of the pandemic (when they fell to historic lows) they are still competitive. Accordingly, for some homeowners, Now may be a good time to refinance their home loan.

By answering a few simple questions you can easily determine if mortgage refinancing is worth it to you.

Why should you refinance your mortgage?

There are several reasons you might want to refinance your mortgage. Here are three general things to know.

Save money with low interest rates

Arguably the best reason to refinance your mortgage is to save money by securing a lower interest rate. Although interest rates are around 6-7% at the time of writing, homeowners with higher rates can now benefit from refinancing. This is generally considered value if a homeowner can get an interest rate a full percentage point lower than what they currently have. Its benefits will be felt immediately with a small monthly payment

Just understand that a new loan will require a new closing process and you will have to pay Closing costs From the beginning again. So make sure you plan to stay in your current home to break even the cost of refinancing.

You can start a mortgage refinance by answering a few short questions here.

To reduce the length of their loan

Most mortgage lengths are pegged at 30-year terms. But refinancing can shorten your term length. By refinancing to a 15-year or 10-year mortgage you can pay off your loan faster, freeing up cash you would otherwise have spent in the coming years. This allows you to save money that would have otherwise been spent on interest. So, if you want to shorten the length of your loan – and save money on interest – then refinancing is probably worth pursuing.

Just remember that shorter loan terms will result in higher monthly payments. So you don’t save money immediately. The benefit of shortening the length of your loan is primarily tied to the money you’ll save in the future and refinancing at a lower interest rate, which will save you money now. You can crunch the numbers with a shorter term length using the calculator below.

Locking in a fixed rate mortgage

If you originally secured an adjustable-rate mortgage (ARM), you may have once enjoyed the benefit of a lower mortgage rate. But if it changes (and increases) then you’re probably looking to go back to a lower rate. By refinancing your mortgage you can lock in a fixed rate, thus removing the unpredictability of your current situation. This will allow for more efficient budgeting. This will ensure that what you pay this month will be the same next month and in the months and years to come

Bottom line

Homeowners refinance their mortgages for a variety of reasons. Typically, however, they do so to secure a lower interest rate, shorten their term, or lock in a fixed rate mortgage. Sometimes they can do all of these at once. But even if they can take advantage of one of these benefits, it may still be worth pursuing.

Not sure if a refinance makes sense for you? Answer a few short questions here and find out!