If you have a fixed-rate mortgage, you can rest assured that you will have steady monthly payments (comprised of principal and interest) throughout the life of your loan. However, as market and economic factors change, the opportunity to improve your mortgage rate or shorten your term may present itself. If the rate that you locked in at closing is higher than current market rates, you may want to consider refinancing your mortgage. A mortgage refinance allows you to change the rate and/or term of your loan.
Here are five reasons why refinancing your mortgage can be a good idea.
A Lower Mortgage Interest Rate
The main reasons to refinance your mortgage is to obtain a lower interest rate and lower your costs. A lower interest rate does two things; it lowers your monthly principal and interest payment, and it increases the amount of your payment that goes toward your principal balance. This will save you money each month and over the total life of the loan!
Elimination of Mortgage Insurance
If you have an FHA loan and made a down payment of less than 20% of your home’s purchase price at origination, you are paying a monthly mortgage insurance premium. A refinance may provide a good opportunity to transition from an FHA loan to a conventional loan, and if you have enough equity in the home, you may be able to eliminate your mortgage insurance premium if certain conditions are met.
Consolidate High-Interest Debt
If you have high-interest debt from personal loans or credit cards, refinancing and accessing the equity in your home can be an option to pay it off. In a cash-out refinance, you would refinance your loan for a higher amount than you currently owe on the mortgage and receive the difference in cash.
Reduce the Term of Your Loan
When interest rates fall, it may be an excellent time to consider reducing the term of your loan. If you have a 30-year mortgage and are looking for a lower rate, it may also make sense to move to a 20 or 15-year mortgage. A shorter term will increase your monthly payment but reduce what your interest costs over the life of the loan.
Move from an ARM to a Fixed-Rate Mortgage
An adjustable-rate mortgage, or ARM, offers a introductory - rate at the beginning of the loan for a fixed amount of time and is then adjusted based on current market rate at specified intervals throughout the life of the loan. If rates begin to trend upward, it may increase your monthly payments (due to higher interest costs). Refinancing out of an ARM mortgage and into a fixed rate mortgage may allow you to lock in a fixed rate and provide peace of mind in the event that rates trend upward.
As your needs as a homeowner, as well as market conditions, change the expert staff at Standard Mortgage (NMLS#: 44912) is here to help. For over 90 years, Standard Mortgage has been finding the solutions that home buyers and homeowners need.
