Is Now a Good Time to Refinance My Mortgage
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Many of you might have heard that refinance saves money. But the question is when to go for refinancing that saves your wallet. Before let’s know about refinancing. It’s a mortgage that helps you to pay off an existing loan by replacing it with a new one. The swap of the existing loan includes many reasons such as:
- To reduce the term of the mortgage and avail the benefit of lower interest rate
- To convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, and can work opposite
- To tap into home equity to raise funds and meet financial obligations.
In reality, refinancing can cost between 3%-6% of a principal amount. As you have learned the advantages of refinancing. So you might be wondering, is now a good time to refinance my mortgage? When the mortgage rate is quite close to rock bottom, it’s better to refinance a mortgage.
Do you know over 15 percent of homeowners with a mortgage on their primary residence opt for refinancing in 2020? Moreover, many homeowners are ready to refinance a mortgage on their primary residence.
To understand when it’s a good time to refinance:
- First, determine the period you will stay at your home,
- Be clear about your financial goals,
- And know your current credit score.
These three things play a vital role in making a productive decision about whether — and when — to refinance.
When Does it Make Sense to Refinance?
Generally, people start planning to refinance a mortgage when they observe the fall in the current loan rates. However, there are other good reasons to refinance that really make sense:
- If your financial status allows you to pay off the loan quickly with a shorter term.
- When you’re planning to tap some extent of your home equity. That too with a cash-out refinance.
Do you know a person spends a minimum of 2 percent of the loan amount on closing costs? But one might want to figure out how much time it takes to regain these costs. Generally, it’s called the break-even point. Let’s understand through an example. Suppose it takes 30 months to break even on $3 thousand by paying $100 every month. In case you don’t stay at home till the period, you will lose the money in a refinance. So, ensure the first whether you will stay at home or not. You have already paid off an immense amount of principal, so make a wise decision while jumping into a refinance. |
Is it Worth Refinancing for Half a Percent?
Cut off the traditional thinking, which says that it’s good to refinance when mortgage rates are lower than your current rate by 1 percent. Such decisions don’t work well when thinking about considerable financial planning. Even a half-point improvement in the rate can make sense. You can use the Preferred Rate’s mortgage refinance calculator to have a good idea of real numbers. You can easily analyze your potential savings.
Refinancing is an excellent option to save huge money but make sure to know your current & future circumstances to make a refinance a healthy choice.