Many homeowners are rushing to take advantage of historically low interest rates. Refinancing a mortgage can help you in many ways. Before you apply for a mortgage, you’ll have to identify your refinancing goal.
Do you want to lower your monthly payment? Using a mortgage calculator, it’s easy to calculate how much you’ll save by refinancing. For example, if you’re currently paying off a $100,000 loan at 5% interest, your payments on principal and interest alone are $536.82 for a 30 year loan. Refinancing at 4% drops your payment to $477.41 – a savings of $59.41 per month or $712.92 per year. Depending on how many years you have left on your original mortgage, this is a tremendous savings.
Do you want to pay off your loan sooner? If you’re currently in a 30 year mortgage, you could refinance and pay it off by taking a shorter term loan. This will increase your monthly payment, but not as much as it would if interest rates weren’t so desirable right now.
Do you want to convert to a fixed rate? If you currently have a mortgage with an adjustable rate (ARM), your mortgage rate could go back up again once the mortgage rates rise. A fixed rate option could lock you in at a lower rate if you refinance now.
If you’ve decided that it’s time to refinance, please be sure to speak with your mortgage representative to help decide what’s best for you!