(323) 910-1070
Refinancing your home can offer various benefits, from reducing monthly payments to funding your dream home renovation project. However, deciding when to take the leap can be challenging, especially with an uncertain economy and fluctuating interest rates. Despite this uncertainty, refinancing your home may still make sound financial sense, which we'll explain below.
Reasons to Refinance: The Quick Answer
In general, there are three reasons to consider refinancing your home:
1. To reduce your interest rate and lower your monthly mortgage payment
2. To shorten your loan term, minimizing long-term interest costs
3. To eliminate monthly (and costly) mortgage insurance payments
Let’s break these down in more detail.
Lower Interest Rates
When you refinance your home at a lower interest rate, your new monthly mortgage payment will drop. In our book, that's a great reason to refinance, especially if you want to free up cash toward other expenses or savings goals, such as building an emergency fund or contributing to a retirement account.
It’s also worth mentioning that you are more likely to qualify for a better interest rate if your credit score has improved since taking on a loan. So check your credit report, continue making timely payments, and try to eliminate outstanding credit card debt.
Shorten Your Loan Term
Typically, homeowners choose 30-year mortgages since they offer lower monthly payments and greater financial flexibility. While it is true that the interest paid over 30 years will be higher, many homeowners find the trade-off to be worthwhile.
However, remember that refinancing may only be viable if you have enough equity in your home. Mortgage insurance is typically required if you have less than 20 percent equity in your home or an FHA loan. Therefore, it's best to consult a mortgage professional to determine if refinancing is right for you.
Eliminate Mortgage Insurance
Refinancing your mortgage is one way to eliminate the need for costly mortgage insurance.
The cost of mortgage insurance varies depending on the loan type, down payment amount, and other factors. However, homeowners generally pay between 0.3 and 1.5 percent of the yearly loan for mortgage insurance.
For instance, if you're a homeowner with a 30-year loan on a property valued at $250,000 and paying 0.5 percent for mortgage insurance every year, you can expect to pay more than $31,000 over the life of the loan. That's a considerable amount of money that could be put to better use!
However, remember that refinancing may only be viable if you have enough equity in your home. Mortgage insurance is typically required if you have less than 20 percent equity in your home or an FHA loan. Therefore, it's best to consult a mortgage professional to determine if refinancing is right for you.
Finding the Right Mortgage Solution: It’s What We Do Best!
At Accel Mortgage Group, we aim to help you find a custom-tailored mortgage option that fits your lifestyle, goals, and needs. Reach out to us or request your mortgage rate to get started today!
