Refinancing your home is a fantastic option for those that will benefit from it, but how can you be sure that you will be among that group? We have chosen a few great reasons to look into this option, and if any pertain to you, then it would be wise to explore refinancing.
Your Monthly Payment Is Too High
One of the best reasons for refinancing your home is to lower your monthly mortgage payments. The reasons for doing this may be that you have a decrease in monthly income, an increase in monthly expenditures, or any other number of unexpected circumstances that may come up that require a reallocation of funds.
Photo By Shutterstock/anekoho
This is primarily considered an “emergency” reason, and unlike the following reasons should be used as a last resort. The reason for this is you are basically adding more time and a good amount of money to your lifetime payment of the home with no other advantages. However, if this is the only way to save your home, then it’s a great idea!
You Have Better Credit
If your credit goes up substantially, chances are your interest rates will drop from refinancing! Depending on the cost of the home and your current interest rate, even a small reduction can save you hundreds each month on your mortgage payments.
It should be noted that you should reserve this for substantial increases in your credit score. If you reach a score upwards of 760 on your credit, then you can consider refinancing your home.
Photo By Shutterstock/Monkey Business Images
You Don’t Have A Fixed Mortgage Rate
If you have an adjustable mortgage rate, you never know what’s going to happen when your fixed period is over, and you hit the variable rates. You may be able to benefit from a low-interest rate, but historical trends don’t support that happening in the near future.
That being said, you can give it a shot, or you can play it safe and change to a fixed mortgage rate. With a fixed rate, you’re locked in, and you will be saved from any interest rate spikes in the market that might occur in the future.
Most financial advisors would steer you in the direction of switching from an ARM to FRM, and it is probably one of the best decisions that you’ll make with your finances if this situation applies to you.
Interest Rates Have Lowered Recently
The most common reason for refinancing your home is to take advantage of a recent drop in the market’s interest rates. The same could be said about any loan, refinancing when your credit is better and the market’s interest rates have dropped is a sure way to save yourself hundreds a month and thousands over the course of the loan.
Photo By Shutterstock/pathdoc
The question most potential refinancers have is “when is the interest rate change big enough to positively influence me,” and the answer is that it is going to be unique to each home loan.
You shouldn’t be looking at a rate change from a percentage saved standpoint, but from a total dollar amount saved standpoint. You can easily calculate this number by using the amount you normally pay and subtracting the new monthly amount (after refinancing fees.)
At that point, you should figure out at what point you would break even, and determine if you will still be in the home or will try to sell it by then. If you will be selling before then, then you have just saved money!
If you want the actual dollar amount saved, you can just add the number of months between your planned sale date and the break-even point. You could stand to save tens of thousands of dollars by refinancing your home.
Always Be Informed
Knowing what situations will best benefit you isn’t always easy, but that’s why financial advisors exist! Whether you’re looking for a new loan or thinking of refinancing your home, you can call Mortgage Possible at 858.764.7837 to have all of your questions answered.