When is the Right Time to Refinance? Hint: Now!
Interest rates have reached a point that many people never believed would happen. With 30-year fixed rates dipping below 4%, millions of homeowners are in a position to refinance and save significant money. Here are some of the top reasons why you should consider refinancing any existing mortgage.
Better Rate Means Lower Payments
The most obvious reason that attracts most people to refinance is the appeal of a lower interest rate, resulting in a lower payment. For a mortgage of $250,000 a change in 0.75% in rate can lower the monthly payments by $110. A wider gap in rates, such as 1.25% or even 2% can mean a savings of over $200 per month. For most homeowners this is reason enough to consider the costs of refinancing.
Better Term with Similar Payment
There is a lot of math involved in this example, but the bottom line is that a homeowner can save thousands of dollars in the long run.
Suppose you or someone you know took out a home loan approximately 3 years ago at a rate of 5.25% with a beginning balance of $250,000. The balance would likely be around $239,000 as of this writing. By refinancing that $239,000 at 3.95% on a 20-year loan, you could save over $100,000 in interest payments over the next 20 years. The home payment would increase by approximately $50 a month, but it could be a great financial move in the long term.
Improve Your Annual Tax Deduction
In recent years, Congress has changed the rules concerning using mortgage interest for a tax deduction. The interest paid on a 2nd mortgage is no longer deductible if that mortgage was not used to purchase the home. This means that people with a HELOC or a fixed rate 2nd mortgage that was used to consolidate debts or any other reason no longer get the tax deduction for that 2nd mortgage. By combining the existing 2nd mortgage with the 1st and refinancing everything to one loan, you will regain that tax deduction.
Move to a Different type of Mortgage
Some people may have purchased their home using FHA. Others may have used a less than ideal type of mortgage with a high interest rate. If you have made your mortgage and other debt payments on time for the past 12 months, your credit may now be strong enough to refinance to a conventional loan. A conventional loan will have better interest rate and, even if you pay private mortgage insurance, the mortgage insurance will eventually drop off once the balance is low enough. With FHA loans, the new rules state that the private mortgage insurance must remain in place for the life of the loan.
Regardless of your situation, if you have purchased a home within the past 3 to 5 years, now is a great time consider refinancing and taking advantage of these historically low rates. Contact us today to get started.