Should you take advantage of today’s low mortgage rates and refinance?
Done correctly, refinancing could help you lower your monthly payment, tap some of your home equity or help you pay off your mortgage earlier. Here are some questions you’ll want to ask yourself if you’re thinking about refinancing.
What is your current interest rate?
The larger the gap between your current mortgage rate and your refinance rate, the stronger the case for refinancing. For instance, if you have a $220,000 home loan with a 30-year mortgage at 5.5%, your monthly principal and interest payment would be about $1,249. If you refinanced at 3.5% for 30 years, your new principal and interest payment would be just under $988.
Are the costs of refinancing worth it?
Just like with your original home loan, there are fees and closing costs associated with refinancing that can add up into thousands of dollars.
Will refinancing help you meet your goals?
Refinancing for a shorter duration —15 years instead of 30, for instance — could save you a significant amount of money over the term of the loan, though your monthly payment will be higher than your current payment. You also could be mortgage-free much faster. For those with enough equity, refinancing also can help provide cash for home renovations and other big-ticket items. For many, it’s a matter of simply lowering their monthly payment and having extra cash each month for other expenses or to save.
Will you be in your house long enough to benefit?
If you might have to move in the next couple of years, a few years of refinancing savings might not be enough to offset the costs of the refinance.
Talk to your lender. There are many variables that go into a decision to refinance. Your PRMI loan officer is best equipped to discuss the pros and cons of your particular situation, and what refinancing now might be able to accomplish for you.