With a new calendar year underway, many Americans may be considering ways to cut corners to help make and save extra money. Fortunately, there are more than one waysaving And even longer cuts .
A traditional way to reduce costs tied to existing debt is refinancing. Whether you have one, , or home loans, refinancing can potentially save you money in the short term and over the life of your loan. It can also shorten the term of your loan so you can use the money elsewhere.
However, not all homeowners benefit. In the current rate environment with rates close to 6%, there are only select homeowners who will benefit from acting. Now you can easily find out if you are one of them by answering a few quick questions here.
Why You Should Refinance Your Mortgage in 2023
There are three primary types of homeowners who can benefit from refinancing their mortgage now. Do you fall into this category?
Homeowners who can get lower interest rates
Mortgage rates fell to historic lows during the height of the coronavirus pandemic in 2020, prompting many homeowners to refinance their existing mortgages. With that being said,. Refinancing is generally considered beneficial for homeowners if they can lower their existing interest rate by a full percentage point. So, if you have an interest rate of 7% or more now – and have That would support refinancing – then it might make sense to work.
That single percentage point rule, however, is not binding. If you have a higher rate than what’s currently being offered and want to save whatever you can, it may still be worth acting. Every dollar counts. Just remember that when you refinance you have to close on your home again – and that includes the down payment. So if you don’t plan to stay in your home long enough to recoup the costs from closing the refinance, it might not be worth it.
Every homeowner’s personal situation is different, however, so it’s best to crunch the numbers for yourself below to see how you might benefit.
Homeowners who want to reduce the length of their loan
Another huge benefit of refinancing? Wrap up your loan sooner than expected. Refinancing may be for you if you can use the boost you get from not making mortgage payments every month.
A note: A short-term refinance often increases your payment, albeit for a new, short period. This will still save you money because you won’t be on the hook for interest throughout the principal life of the loan. This probably won’t save you much, if anything, in the short term since you’re essentially consolidating what you owe in a shorter time frame.
But if you can currently use your mortgage money for something else — and temporarily pay a higher payment — then refinancing may make sense for you.
Homeowners who want to drop their PMI
If you originally purchased your home with a 20% down payment, you may be charged, also known as PMI. The extra money in your monthly payment, however, can potentially be moved by refinancing if you later meet the 20% equity threshold in your home.
You can easily determine if this is the case by comparing the approximate value of your home in the current market to the amount you currently owe. If the difference exceeds or equals 20%, you should contact the lender to talk about refinancing.
Again, the same considerations apply to closing costs, so make sure the money you’ll potentially save isn’t washed away by the costs you’ll incur (and fail to make up) at closing.
Answer a few simple questions now to find out if refinancing works for you.
Mortgage refinancing has been convenient for a wide range of homeowners in recent years. And while rates aren’t as attractive as they once were, there are still many borrowers who could benefit from refinancing their mortgage now.
If you want to (and can) lower your interest rate, pay off your loan early, or finally ditch that pesky PMI, refinancing may be for you.
You can easily start the process online today.