Taking steps to refinance your mortgage can help you save thousands of dollars (or more) on interest. It can also help you reduce your monthly payments. However, you may wonder – is now really a good time to refinance?
This is a good question, and there are a lot of factors to consider. From the state of the economy to your personal needs and the current VA IRRRL rates, knowing what to look at is key. Keep reading to find some of the top signs that now may be a good time to refinance your mortgage.
You Want a Lower Monthly Payment
Mortgage refinancing can help reduce your monthly payment. In some cases, this is a significant reduction. This is because, with refinancing, you are reducing your interest rate and stretching your payments further.
For example, if your original loan was for $200K and you have paid on your mortgage for 10 years, your balance will be around $150K. You can refinance this remaining $150K for 30 more years, which lowers your payment. The reduced loan amount and the longer term and a lower rate will reduce the payment you are required to make monthly.
You Want to Eliminate PMI
Private mortgage insurance is something that is built into all mortgage loans. The loan-to-value of this is over 80%. If you still have a conventional loan, the PMI automatically cancers when the LTV reaches the 78% mark.
If you have taken out an FHA loan, the insurance doesn’t drop at the 78% LTV. Also, if you put under 10% down for the FHA loan, you will pay the PMI for the lifetime of your loan. The best way to eliminate PMI is by refinancing your mortgage and receiving a conventional loan.
You Are Ready to Make Repairs or Improvements to Your Home
HELOC loans, home equity loans, and cash-out refinance let you acquire a loan based on your home’s equity. You will be able to borrow up to 80% of the total value of your home. For example, if you have a home that is worth $300K and the loan balance is $200K, you can borrow up to $40K. This makes the total loan amount between these two mortgages, 80% of your home’s total value.
There are some differences in home renovation loans. For example, the cash-out will require one mortgage payment that is repaid over a period of 15 to 30 years. The home equity loans and HELOC loans are second mortgages and will have a separate payment that is made over a period of five to 15 years.
You Are Getting Close to Retirement
This is a factor that depends on your situation. If you are reaching retirement age and you have years left on your mortgage, refinancing will help you easily afford the ongoing payments. However, if you have paid your home off, considering a reverse mortgage may be smart. The reverse mortgage is when you receive payments each month or a lump sum of money upfront by using the equity in your home. Usually, reverse mortgages aren’t due until your death.
You Have a Loan with an Adjustable Rate
Adjustable-rate mortgages provide an initial term that is a low fixed rate. This is provided for a few years. However, once the initial term passes, you will experience a rate increase each year. Due to this growth rate, you will likely be able to save money by refinancing and choosing a loan with a fixed-rate mortgage.
Smart Refinancing
If you find yourself in any of the situations above or if you just believe that refinancing would be beneficial for you and your family, look into the options you have. Today, there are more options than ever before, which means you should be able to find a loan product that addresses your needs. If necessary, work with professionals who can provide additional insight and guidance.
