Refinancing your mortgage can provide you many benefits, such as the ability to borrow against your home's equity for improvements or paying off unsecured debt. And with the low-interest rates that are available, right now may be a great time to save on interest. Here are some recommendations to consider when you are planning for a home mortgage refinance.
Look For Better Loan Terms
One of the first considerations you will look at when you are refinancing your mortgage is how much money the process will save you. Whether interest rates are much lower than your current loan, or you have a lot of home equity you want to use for home repairs or paying off debt, the new loan that you refinance should have a savings profit to you. Look at the fixed interest rate of the new mortgage and make sure it is lower than what you are paying now. Otherwise, you may opt for a refinance from your current 30-year mortgage into a 15-year mortgage. This will allow you to pay off your mortgage sooner, and often with a payment that is not much more than your current mortgage payment.
For example, if your current mortgage interest rate is six percent and now interest rates are around three percent, you can cut your interest rate in half. By doing so you can reduce your payment on a 30-year loan or pay a bit more for a 15-year loan and have it paid off in half the time. Talk to your mortgage broker about how much each option will cost you in interest over the period of the loan and you will be surprised at the savings when you refinance to a 15-year loan.
Make Sure You Recoup Your Costs
Anytime you refinance your mortgage, there are going to be closing costs originating with the process, just as when you originally got your mortgage loan. These costs pay for the loan origination fees and your broker's commission along with some other necessary costs, which can add up to a few thousand dollars.
However, when you can refinance for a much lower rate, you can save on loan interest that will add up quickly, allowing you to recoup the costs that you paid for the closing costs. So, although your closing costs may cost you around $5,000, as an example, you would be able to recover that in your interest savings over the first eighteen months to two years approximately of your new mortgage interest rate.
