Interest rates today remain low, leading many people to investigate refinancing their current mortgage. Before taking this step, men and women must know the benefits of doing so and ensure it is the right move for their situation. This involves determining how much money they will save by refinancing the mortgage.
The Benefits of Refinancing a Home
Men and women state obtaining a lower interest rate on the home mortgage serves as their reason for refinancing. Additionally, some homeowners purchase points to bring the rate down more. What this means is they pay an upfront free to get a lower monthly rate and reduce the payments they make. This allows them to pay less for the home in the long run. When a person gets a lower monthly payment, the have more money in their budget that they can use for other expenses or to put more money into savings. Fellowship Home Loans helps those who want to accomplish these goals.
Other homeowners refinance to a loan with a shorter payoff period as they wish to clear their mortgage debt sooner. For instance, a person with a 30-year loan might find refinancing to a 15-year loan allows them to own their home sooner and build equity faster. Some homeowners pay more each month as a result of making this move. Others, however, find they bring the rate down low enough that the difference in payments isn’t very great. This depends on the rate they are paying and the rate they will get by refinancing.
Adjustable-rate mortgages were extremely popular at one time, and some homeowners continue to select this option when purchasing a home. They now want to lock into a fixed-rate loan and refinancing allows them to do so. Others choose to consolidate a home equity loan or line of credit and their mortgage so they only have one payment each month. Refinancing allows them to achieve either of these goals.
Is It Appropriate to Refinance?
Before refinancing, a homeowner must determine how this will affect their payment. Sit down and run the numbers to see what the new monthly payment will be, how many months you will make this payment, and how long it will take to pay the loan off. Next, determine the fees associated with refinancing, such as closing costs. If these fees are high, refinancing might not be the best move.
For instance, closing costs for the loan you are considering will set you back $4,000. However, the monthly savings achieved by refinancing the loan comes to $200. This means it will take 20 months before you break even. Individuals looking to move soon won’t benefit in this situation, as the homeowner may not recoup the costs before the move. A person who plans to remain in the home for five years, however, will benefit from 40 months of savings before the move. Refinancing makes sense in this situation.
Consider the benefits and drawbacks of financing before deciding. Although refinancing looks great on the surface for many, once they run the numbers, many discover it is not the right move. Others find doing so saves them significant amounts of money. Only you can determine which category you fall into and whether this is the right move for you.