As you begin the process of mortgage refinancing, it is vital to thoroughly comprehend the potential benefits. Getty Pictures
In recent months, mortgage interest rates have grown dramatically (about 7%) as the Federal Reserve attempts to calm the economy and combat inflation. After near-record-low mortgage rates stimulated a market boom during the pandemic, refinancing at this time may not make sense.
However, there are still situations in which refinancing your mortgage may be advantageous.
When refinancing, a new mortgage is taken out. This loan is meant to pay off your existing debt, hopefully replacing it with terms that better suit your financial requirements and objectives.
If you believe you could profit from this, contact a mortgage refinance professional immediately. They can answer any inquiries and assist you in getting started.
Myths about mortgage refinancing to know
As you begin the process of mortgage refinancing, it is vital to thoroughly comprehend the potential benefits. Here are five common misconceptions about refinancing.
This is not the time to remortgage.
Refinancing is highly dependent on your particular circumstances. For instance, if you had less-than-perfect credit and were unable to take advantage of record-low interest rates when you took out your current mortgage, you may still want to do the math before refinancing. Utilize the mortgage refinance calculator provided below to do the math.
Examine Freddie Mac’s weekly interest rates and compare them to your own. If you discover a loan with a one-percentage-point-lower rate and a term that is comparable to or shorter than the remaining term on your present loan, the majority of experts would advise you to accept it.
Even a half-point reduction may be worth investigating, especially if your first house loan was substantial or if the rate is variable. Changing from an adjustable rate to a fixed rate might provide stability for monthly financial planning.
Refinancing just involves obtaining a cheaper interest rate.
There are other motivations for refinancing besides the allure of a lower interest rate. Some are able to shorten the duration of a loan, eliminating years of interest payments and reducing the total cost of the loan. Others utilize the equity in their property to pay off debts with a higher interest rate, such as credit card and personal loan obligations. With consumer debt at a record high, this is a significant factor. You could also be able to avoid paying for private mortgage insurance (PMI).
Calculate the entire cost of refinancing to determine if you will save money on monthly payments or overall, depending on your financial goals and circumstances.
Consult with an expert on mortgage refinancing who can assist you in determining if refinancing is good for you.
Your current lender can provide you with the best terms and rates.
You may be content with your current bank or lender, but it pays to look elsewhere. Freddie Mac reports that in recent years, lenders’ interest rates varied by as much as 0.22 percentage points. Consider as well that fees, points, PMI, and closing costs add up. Compare both the total loan amount and the monthly payment projections.
Use the table below to compare lenders and interest rates to find the best option for your circumstances.
Refinancing your house to pay off other debts is a poor decision.
According to figures from the Federal Reserve, credit card interest rates were approximately 16% last summer. Cash-out refinancing may make sense if you wish to pay off this type of debt, the value of your property has increased, and you are able to adjust or limit your card spending patterns. Consider if you can afford a higher monthly mortgage payment in the context of your overall financial situation.
Before making a selection, remember to include all data, including projected closing fees and total loan interest.
You will lose some equity in your home.
This is only true if you withdraw cash upon refinancing. Home equity is the market value of the home minus any liens, such as the present mortgage, that are tied to it. Refinancing with a shorter-term mortgage, reducing the interest rate, or eliminating mortgage insurance have no effect on the overall equity.
The conclusion
When your current mortgage rate is much lower than current rates, refinancing is often not worthwhile. If you could save money, shorten the loan term, or both, it is worthwhile to investigate more.
Always consult with a financial advisor or real estate professional for assistance with the calculations. Experts advise you to carefully consider your complete monthly and long-term budget and financial status.