Refinancing - The Mortgage World's Superhero
While a big mortgage payment can strain a budget, the fact that it's such a big portion of your monthly spend means your mortgage can be a great place to save money.
CUT YOUR RATE, SLASH YOUR PAYMENT
Reducing your payment, even a small percentage, can pay big dividends. For example, if you took out a $350,000 mortgage at 5% for 30 years, your principal and interest payment would be $1,879/month. If you had financed that same loan at 4.5%, your payment would have only been $1,773.40. That's a difference of more than $100/month or $37,971.75 over the entire 30-year term.
Refinancing to a lower rate makes sense if your credit has improved since you got your mortgage. There may also be a mortgage program that didn't exist or you didn't qualify for, that can offer better rates. Finally, by switching lenders, you may find rates that are better than what you're currently paying.
REMOVE PMI
If you originally borrowed more than 80% of the value of your home, you may be paying Private Mortgage Insurance, or PMI, as part of your monthly payment. If your home's value has increased since you bought it, you may have dropped under the PMI threshold. By refinancing, you can take advantage of your home's appreciation to remove PMI and reduce your payment.
REDUCE YOUR TOTAL DEBT PAYMENT
If you are dealing with other debt, like student loans, medical bills, or credit card debt, you may be able to roll those debts into a new mortgage. By reducing the overall interest rate of your total debt and spreading the repayment period over the longer mortgage term, the total amount you pay toward debt each month can drop significantly. This can be a particularly effective strategy if you consolidate an equity loan or Home Equity Line of Credit (HELOC) that has passed its draw period.
THINGS TO THINK ABOUT
There are costs associated with refinancing, such as appraisals, points, and title fees. These fees can reduce the total amount of savings you'll see. If you're only planning to be in your home for a few more years, the savings you'll get by lowering your interest rate may not make up for the up-front fees.
Even if your monthly payment will decrease, you might end up paying more total interest by extending your payoff term than you would have by completing your existing mortgage.
THE FUN PART
After your refinance, you may find you'll have extra money every month. What can you do with it? Here are a few ideas:
- Start or build an emergency fund to prepare for unexpected expenses.
- Put the extra money toward the principal balance of your mortgage and pay off your home faster.
- Grow your investments, whether stocks, bonds, certificates, real-estate, or something else. Planning for the future, including retirement, is always a smart use of extra cash.
- Do something fun, like take a vacation or put a few more nights out on your calendar.
- All of the above!
CALL US IF YOU HAVE QUESTIONS
Refinancing your mortgage can make a big difference in your monthly finances. If you're considering it or just have questions, our mortgage lending experts can help. They will sit down with you and talk about your goals and work to find a program that works best for you. Call us today at 206.398.5888 to get started.
