Financing & Insuring

When to Refinance a Home Loan

September 8, 2017
Couple reviewing refinancing documents

With interest rates at attractive lows, it might seem like a great time to refinance your mortgage loan—a process that involves paying off your current home loan with a new loan, resulting in new principal and interest payments (the P and the I in PITI) that could save you money, among other things. But how do you know if it’s a good time to refinance?

 

Following are four instances when it might make sense to refinance your home loan:

  • You want a lower interest rate. Refinancing for a lower interest rate, if available, could lower your monthly payment, potentially saving you money over the life of the loan. Just keep in mind that refinancing means you’re actually originating a new loan—and that means another set of closing costs. Check with a loan officer to ensure that savings realized over time from lowering your interest rate will be greater than the closing costs associated with your new loan.
  • You want to pay your mortgage off sooner. This is another lower-interest-rate scenario. Say you have a 30-year mortgage and you’re able to refinance to a 15-year mortgage with a lower interest rate. It’s possible that, with the lower interest rate, your monthly payment would be similar to your current payment, enabling you to pay off your loan faster without straining your finances.
  • You want a different loan type. Maybe you have an adjustable-rate mortgage (ARM) and your introductory fixed rate is set to expire. If market conditions are right, refinancing to a fixed-rate mortgage may allow you to avoid rising payments. Alternatively, maybe you have a fixed-rate mortgage and refinancing to an ARM with a lower introductory rate could save you money—assuming you plan on selling your home before the interest rates change. Another tactic would be to switch from an FHA loan to a conventional loan in order to eliminate monthly mortgage insurance premiums (MIP).
  • You want to tap into your equity. If your home’s value has increased since you bought it, you could opt for a cash-out refinance, in which you take out a new loan for up to 80% of the home’s current value. This allows you to pocket the cash for the difference between your remaining principal balance and the amount of the new loan, freeing up money that you could use for, say, a remodeling project or college funds. However, bear in mind that you are taking on additional debt by borrowing against the value of your home, so make sure that this is a financially sound decision for you.

To learn more about refinancing your home, contact our affiliate, HomeAmerican Mortgage Corporation (HMC), to discuss your options with a loan officer.

Or, if you’re ready to leave the old home behind and look for a new home, visit RichmondAmerican.com.

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