Should You Refinance Your Home Mortgage?

According to Freddie Mac’s Primary Mortgage Market Survey (PMMS), over the past 48 years, interest rates on 30-year fixed-rate mortgages have ranged from as high as 18.63% in 1981, to as low as 3.31% in 2012, with the promising news that today’s rates continue to hover at near-historic lows. But even armed with that encouraging information, it can still be difficult to know when to pull the trigger on refinancing a current home mortgage. Our knowledgeable staff has insight to help you navigate this tricky situation, and determine if you should consider a new loan term to help loosen your belt, breathe a little easier, or gain funding to help with further home improvement projects.

Should You Refinance Your Home Mortgage?

Refinancing a mortgage means paying off an existing loan and replacing it with a new loan. There are several reasons why homeowners refinance: to get a lower interest rate, to shorten their term, to tap into the equity in their home, or to consolidate debt.

• One of the primary reasons people choose to refinance their mortgage is to lower their interest rate on their existing loan. As a general rule, you’ll want to look for a 1% savings as enough incentive to refinance. Naturally, reducing your interest rate can help you save money, but in addition, it can also help you build equity in your house more quickly. To decide whether a refinance makes sense, calculate how long it will take for the cost of the mortgage refinance to pay for itself. If you plan to sell before the break-even point, refinancing might not be worth it. Check out our Mortgage Calculator to determine an estimated payment amount.
• Another reason people refinance when interest rates fall is to reduce the term on their mortgage. Sometimes the opportunity arises for your monthly payment to not change, but to gain a significantly shorter term.
• Refinancing to tap into home equity or consolidate debt fall together. People often use the equity in their homes to complete a home remodel project, to get rid of credit card debt, or to pay off another large expense. Refinancing for these reasons may help you save on high interest rates, but be aware that once you pay off a credit card with a mortgage, it takes self-discipline to not rebuild the balance again. Consider closing the credit card once it is paid off to lessen the likelihood of repeating poor financial habits. Another benefit -- interest paid on mortgages may be tax deductible.

Refinancing can be a great financial move if it reduces your payment, shortens your term, or helps you build equity more quickly. When used sensibly, refinancing can be a valuable tool for managing and minimizing debt. Before refinancing, look at your financial situation and ask yourself: How long do I plan to stay in my home? Will I save money by refinancing? How much equity do I have built in my home?

If you are looking to refinance or have more questions, please don’t hesitate to contact Stacey McIntire or myself, Molly Peterson. We are here to help you through the refinance process and answer any questions. Additional resources to help get you started can also be found on the Frontier Bank website.

Molly Peterson
Mortgage Banker
NMLS#1390460
mollyp@frontierbk.com
605-331-2889