There is no denying that mortgage interest rates have been trending up but they’re still not far from where they were this time, last spring. Even if rates have risen slightly, does that mean you shouldn’t refinance? The short answer is … it depends. Evaluating your current interest rate, loan type, mortgage terms, and cash flow will help you determine if refinancing is right for you at any given time.
If you are considering it, find out all of your options by talking it over with a loanDepot Licensed Lending Officer, who can lay out various programs that might benefit you at this time. Call today for more information.
In the meantime, here are five reasons it might be very advantageous for you to refinance right now:
Remove private mortgage insurance
For most loans, if the down payment on the property is less than 20 percent, private mortgage insurance (PMI) is required.
In some cases, PMI is automatically removed when you hit the 20 percent loan-to-value (LTV) threshold. Much of the time, however, you need to refinance to get rid of it, particularly if your first mortgage is an FHA loan. Even if you do not have an FHA, many programs require you petition to have PMI removed. Depending on your current rate and PMI payment, refinancing is likely to save you money in the short and long term.
Improved qualification factors
If you’ve been in your home for a few years, hopefully a few elements in your financial picture have changed. Is your credit score better? Is your income higher? Chances are you have more equity. If the factors used to calculate your rate when you bought your home have changed for the better, you might now qualify for the lowest-possible rate.
If you’ve made your house payments on time, remained current on all other accounts, and kept your debt-to-income (DTI) ratio low, your credit score has probably improved. Combined with an overall increase in income, lenders may see you as lower risk than they had in the past, and that may translate into a lower credit score as you refinance.
Lower your payments
While it may seem counterintuitive, you may be able to lower your payments even when interest rates are rising, but it largely depends on the factors of your original loan.
If you had a lower credit score or secured your loan in 2011 or earlier, you may be able to lower your monthly payment by refinancing into a different loan program.
Use our mortgage calculator to see if you can save money on your monthly payments.
Switch from an ARM to a fixed-rate
Now that interest rates are increasing, it makes even more sense to transition from an adjustable-rate mortgage (ARM) to a fixed-rate loan. A refinance now may save you thousands of dollars during the length of your loan.
You could also look at changing the timeframe of your loan. If you’re on a 15-year fixed, you may be able to secure some additional cash flow by extending to a 30-year and lowering your monthly payment. If you want to accelerate your payoff time, you usually can get a lower interest rate for shorter terms by switching from a 30-year to a 15.
Take cash out
If you’re planning a large purchase, whether it’s a wedding or a new car, rates on other types of loans can be much higher than the interest rate on your mortgage. If you’re drowning in high-interest credit card debt – or are ready do some renovations on your home – a cash-out refinance can be the ideal option.
“Cash-out” refinancing allows you to borrow against the equity in your home to pay for a major purchase, consolidate debt or even put a down payment on a second home. As long as you leave yourself a cushion – in case prices dip – the equity in your home is wealth you can tap for other uses.
For any questions about these and other reasons to refinance, give us a call now.
Note: By refinancing the existing loan, the total finance charges may be higher over the life of the loan.
Published May 2, 2018