Refinancing your mortgage is one of the quickest and easiest ways to change your monthly mortgage payments. You can also tap into your home’s equity without selling. In 2021, due to the low-interest rates and rising house values, there was a huge increase in demand for refinancing mortgages. About 25% of homeowners ended up refinancing. As a trusted mortgage advisor in Chester, our team at Penn Street Mortgage is here to help you decide when and how you should refinance your mortgage.
Timing is everything when it comes to making big financial decisions around your mortgage. Here are a few ways to determine the right time to refinance.
When interest rates are low
The number one reason people refinance is to get a better interest rate and lower their monthly payments. If you bought a home when interest rates were high, the last few years have presented several homeowners with the option to refinance. Homeowners could take advantage of the low-interest rates that were available during the pandemic.
When you refinance for a lower interest rate, you’ll get the best deal when your credit score is also high. To get the lowest rates, your credit score should be over 740. Industry professionals should analyze the cost of the refinance, and the savings & discuss a breakeven point based on how long you will stay in the home.
When you can get rid of mortgage insurance
If you put down less than 20% when you purchased the house, you likely have to pay private mortgage insurance monthly. This added fee is backed by the bank in case you’re unable to make payments. But if you have over 20% equity in the home, you can take advantage of a refinance to remove PMI. While you don’t necessarily have to refinance to get this fee removed, it makes sense to see if there’s more value to refinancing.
When you can capitalize on a shorter loan term from your mortgage advisor in Chester
If you secured a 30-year loan, most of your monthly payments will go towards the interest. This means that even if you’ve been paying on your house for 5 years, you might only have paid down your principal balance by a small amount unless you’re making additional principal payments. One way to minimize interest every month is to refinance for a 15-year mortgage. Shorter term mortgages carry lower interest rates so it may benefit to refinance. While your monthly payments will be higher, you’ll be able to pay off your house quicker and spend less on interest. There are pros and cons to refinancing into a shorter loan term, so make sure you speak with a professional mortgage advisor in Chester who can give you the best advice on when and how to make this decision.
When you need to access your home’s equity
Do you need access to cash? Maybe you have a large medical bill or want to remodel your home. If you have equity built up in your home, you can do a cash-out refinance. This taps into the wealth you’ve accumulated in your home’s value. In a cash-out refinancing, you take out a new mortgage for more than you originally borrowed. And are able to pocket the difference in cash from the equity you’ve earned. This can be a great option if you want to consolidate your debt.
When you want to switch loan types with your mortgage advisor in Chester
You might be interested in refinancing if you want to change your loan type. For example, if you originally bought your home with an adjustable-rate mortgage and are interested in locking in a fixed-rate mortgage, refinancing can help you accomplish this. With a fixed-rate mortgage, your interest rate will stay the same over the course of your loan’s term. But an adjustable rate mortgage will change interest rates after an initial introductory period. If you’re unhappy with your current loan, refinancing will allow you to explore other loan options.
When you shouldn’t refinance with your mortgage advisor in Chester
While refinancing might be a good option for a lot of homeowners, there are a few situations where refinancing is not a good idea.
- You have poor credit – Refinancing when you have poor credit won’t do much to help you achieve a lower monthly payment. Since your credit score impacts how low of a rate you can get. If your credit is in bad shape, you won’t get as much of a deal as you might think. Instead, consider increasing your credit score and paying down any current debts.
- You plan on moving in the next 2 years – If you’re not sure how much longer you’ll stay in your house, or you know you’ll need to move soon due to family or work circumstances, it’s best to hold off on refinancing. There are fees associated with refinancing, and if you move within the first 2 to 3 years of getting a new loan, you’ll likely end up losing money.
- Costs outweigh the benefit – make sure you speak with an honest mortgage professional to determine cost vs. benefit. Understand all the costs involved, what your savings are in interest or monthly payments & determine if it truly makes sense.
Before making a decision, do your research. Talk to a professional mortgage advisor in Chester who can give you advice on your personal financial situation and what makes the most sense for you.
At Penn Street Mortgage, our team is ready to help walk you through your options when it comes to refinancing. Before you make any decisions, make sure you talk to our professional mortgage advisors in Chester who have local expertise and industry knowledge to get you the best rates possible. Contact us today to get started!
You can contact us here: https://pennstreetmortgage.com/