Mortgage Advice

Why Now is the Perfect Time to Refinance

October 30, 2014

As homeowners, we often think about doing annual service checks of our heating and air conditioning systems, but you’ve probably never thought about doing a mortgage check-up. Now is a great time to do just that.

Interest rates recently dropped below 4% for the first time in 16 months! But, don’t expect them to stay that way for long. Mortgage rates are expected to rise, and there’s no better time than now to think about refinancing your current mortgage loan.

So, what are you waiting for? Ask yourself these three questions to determine if now is the perfect time to refinance: 

What type of loan do you have?

Over the past several years, low interest rates have made adjustable-rate mortgages an appealing option for many homeowners. However, with higher rates on the horizon, homeowners with adjustable-rate mortgages can expect their interest rate to rise—along with their monthly mortgage payment.

If you have an adjustable-rate mortgage, it might be a smart move to anticipate the impending increase in interest rates and refinance into a more stable fixed-rate mortgage loan. Not only will this buffer you from the potential increase in interest rates, you’ll be locking in today’s historic low rates for the life of your loan.

Do you currently pay private mortgage insurance (PMI)?

If you agreed to pay private mortgage insurance (PMI) in exchange for putting less than 20% down on your current home, I have good news to share with you! A huge money-saving benefit of refinancing is the ability to get rid of mortgage insurance.

As home values have appreciated, and you’ve paid down your mortgage debt, you may have established enough equity in your home to get rid of PMI and reduce your monthly mortgage payment by several hundred dollars.

If you have a conventional mortgage loan, you can ask your lender to remove PMI once you have at least 20% equity in your home. If you’re an FHA borrower, you need to refinance into a conventional loan to remove the mortgage insurance. Consult with your lender to see if you’re in a position to remove PMI from your mortgage.

What are your short-term and long-term financial goals?

Depending on what your financial goals are, a lender can help you determine whether you’re in a good position to refinance your mortgage and the best approach to take.

If your goal is to pay off your mortgage quicker, you may want to consider refinancing into a lower rate and a shorter term. When combined with a great interest rate, the right loan term can help you maximize your savings over the life of the loan. And, with today’s low interest rates, you may be able to keep your monthly payments the same while dramatically reducing the amount of time you’re paying on the loan. This will save you thousands of dollars in the long run.

However, if you’re looking to save money on your monthly mortgage payment, you may be better suited refinancing into a lower rate, rather than a shorter term. This will not necessarily save you more money over the life of your loan, but it could help you free up some extra cash each month that can be allocated toward other financial goals, such as saving for retirement, your children’s college tuition, etc.

Similarly, you need to assess how long you plan on staying in your current home. Refinancing is a great option if you are planning on staying in your home for several years. If you have plans to move in the near future, refinancing may not be the best fit for you.

How do I know if refinancing is a good fit for me?

The best way to determine if refinancing is the best choice for you is to contact a Ross Mortgage loan officer and request a mortgage check-up. At Ross Mortgage, we treat each loan as if it were our own and work closely with our clients to help them put together a plan that aligns with their financial goals. By taking a look at your current mortgage loan, and asking you a few simple questions about your financial goals, we will be able to help you determine whether now is the right time to refinance and the best route to take.

Think you might be in a good position to refinance? Send us a message to schedule a mortgage check-up with one of our lending experts today!