When looking for ways to save money, many homeowners turn to their mortgage. After all, for most people, a home loan is one of the largest investments and expenses incurred monthly. What many do not realize, is that refinancing your home can help you save a significant amount of money when timed correctly. Before we look at why now is the time to refinance, let's first take a minute to understand the purpose of refinancing.
What Does It Mean to Refinance?
Refinancing your home means you trade in your current loan for a new loan with better conditions that will improve your financial state. You still only have one mortgage payment, as the old loan is paid off with the new one.
Advantages to Refinancing?
The purpose of refinancing is to put you in a better financial situation. This means the terms of the new loan should be better than the loan you currently have. Advantages to refinancing include:
- Changing the type of the loan
- Paying off a balloon payment
- Shortening the loan term
- Consolidating payments
Let's take a look at 4 reasons why now is the time to refinance your home.
Lower Interest Rates
According to a study conducted in November of 2018, interest rates are currently hanging around 4.65 percent and below. If you currently hold a mortgage with an interest rate higher than this average, it is advantageous to finance your home for a lower interest rate. A lower interest rate will lower your monthly payments. This allows you to either put the extra money towards the remaining principal or use it for other bills.
Convert Your Loan Type
For homeowners who hold adjustable rate mortgages, there is a constant concern about rates increasing. While it is true that most of the time adjustable rate mortgages have starting rates that are lower than fixed-mortgage rates, it also holds true that these rates over time can end up being higher than fixed-rate mortgages. The unpredictability of not knowing when or how high rates will spike can be a constant source of stress. For homeowners in this situation, now is a good time to refinance your adjustable rate loan into a fixed-rate loan and eliminate the uncertainty.
Reduce Your Monthly Payment
Life happens to everyone. Unfortunately, you may incur financial hardships that make it difficult or even impossible to make your current payment. Missed payments can result in late fees, causing even more of a financial burden and even foreclosure. For homeowners who are facing hardship, refinancing can be a way to lengthen the term of your loan and therefore lower your monthly payment to a manageable amount. It might seem scary to lengthen the term of your loan. After all, you are trying to get out of debt and not prolong it. As long as your new loan does not have an early payoff penalty, you can pay extra on the principal once you get back on your feet.
Better Credit Score
If your credit score has significantly improved since you first secured your loan, it may be a good idea to consider refinancing. A better credit score can mean a lower interest rate. This will not only lower your monthly payment, but it can also significantly reduce the amount you pay for the life of the loan.
Your home is a large investment and it pays to be financially savvy. With years of experience as metro D.C.'s most trusted lender, First Savings Mortgage is here to help you with all of your refinancing needs. The experts in home mortgages are happy to answer any questions you might have, advise you on the right approach to take, and then help you refinance with as little stress as possible.