Why should you refinance your mortgage?

Many people refinance their mortgage to get a lower interest rate.

Getty Images/iStockphoto

The beginning of a new year can bring new challenges and new motivations. It can be a time to think about what is working and what is not. January is also a good time to take a close look at your financial situation. This can include integration new ways to save money as well as methods b cut existing debt.

For homeowners, it may also be worth investigating the benefits of mortgage refinancing. While interest rates are not as good as they were at the height of the pandemic (when they were at historic lows) they are competitive. to be. So, for some homeowners, this may be a good time to refinance their home loan.

By answering a few simple questions it can be easy determine if mortgage refinancing is right for you.

Why should you refinance your mortgage?

There are many reasons why you may want to refinance your mortgage. Here are three common things to know.

To save money at a low interest rate

Arguably the best reason to refinance your mortgage is to save money by securing a lower interest rate. While interest rates are around 6-7% at the time of writing, homeowners with higher incomes can benefit from refinancing now. It is often considered beneficial if a homeowner can get an interest rate that is a whole percentage lower than the current one. The benefits of this will be immediately felt through a small monthly payment.

Just understand that a new loan requires a new closing process and you have to pay closing price again. So make sure you plan to stay in your current home long enough to cover the cost of the refinance.

You can get started with a mortgage refinance by answering a few short questions here.

To reduce the length of their loan

Most mortgage terms are fixed at 30 years. But refinancing can shorten your term. By refinancing with a 15-year or 10-year mortgage, you can pay off your loan faster, freeing up money you could have spent in future years. It will also save you money that would otherwise have been spent on interest. So, if you want to reduce the length of your loan – and want to save money on interest – then refinancing may be worth pursuing.

Just note that the longer the loan term the higher the monthly payment. So you won’t save money immediately. The benefit of reducing the length of your loan depends on the money you save in the future compared to refinancing at a lower interest rate, which is save your money now. You can calculate the numbers in a short time by using the calculator below.

Not locking into a fixed rate mortgage

If you’ve ever secured an adjustable-rate mortgage (ARM) you’ve probably already enjoyed the benefits of a low-interest mortgage. But if it has changed (and increased) then you are looking to go back to a lower price. By refinancing your mortgage you can lock in a fixed rate, reducing the uncertainty of your current situation. This will allow for better budgeting and make sure that what you pay this month will be the same next month and in the months and years to come.

The bottom line

Homeowners refinance their mortgages for all sorts of reasons. Often, however, they do so in order to secure a lower interest rate, shorten their term, or lock in a permanent mortgage. Sometimes they can do both at the same time. But even if they can only use one of these benefits it may still be worth pursuing.

Not sure if refinancing is right for you? Answer a few short questions here and find out!

Leave a Comment