June 5, 2017.
If you’re like most homeowners today, the mortgage you signed on for a decade or even a year ago may no longer feel like it’s the right fit. A mortgage refinance could give you more wiggle room. In a refinance, your lender can help you lower your rate or remove mortgage insurance so you can save money on your monthly mortgage or help you get cash out to pay off debt.
In essence, you’ll be getting a new mortgage. A new mortgage (a.k.a. refinance) can offer better terms that suit your current needs.
Ready to talk refinance? One of our loan officers can help.
9 signs your bank account could benefit from a mortgage refinance
Most of the homeowners we work with are shocked to hear that keeping the same mortgage rate for the life of a loan isn’t something we encourage. It isn’t even an industry standard. Just like you plow through a home maintenance checklist once a year, we also recommend an annual mortgage check-in. By doing this, you can reassess your home loan with your loan officer to determine if it still meets your needs.
Many times, we find that homeowners have been eligible for a lower mortgage interest rate for a long time. Neglecting to check up on this only costs them money — more money than they need to pay each month on their mortgage. This missed savings can compound and grow bigger every year.
Homeowners, here’s how to tell if you can benefit from a mortgage refinance. You may:
- Be looking to lower your current interest rate.
- Have improved your credit score.
- Want to lower your monthly mortgage payment.
- Hope to shorten your loan term and pay your mortgage off early.
- Want to change your loan terms.
- Would like to consolidate your debts.
- Have an unexpected need for cash, i.e., kids going to college.
- Need money for home improvements or a swimming pool.
- Need answers about your mortgage.
Have questions about your current mortgage? You can access your Cornerstone account information here.
When is the right time to refinance? Best-practice tips from a lender
There are many potential benefits to be had from a mortgage refinance, and one of the biggest is monetary savings. All of our loan officers follow the Golden Rule mentioned above: They complete an annual mortgage check-in to make sure that their numbers, and their savings, are still competitive. If not, a refinance may be in order.
From what we’ve learned in-house and with our borrowers, there are certain times when you should call about a refinance:
Current market mortgage rates are more than 1 percent lower than your mortgage rate.
This one is easy. Market mortgage rates are always subject to change, but they’re a pretty good indicator that a refinance could be helpful to your savings. Check in with your lender if your current mortgage rate is much higher than the industry average.
You have mortgage insurance on your loan.
Mortgage insurance may be attached to your home loan if you didn’t pay 20 percent down on your house, which is common among borrowers today. (In 2016, the average down payment was around 11 percent.) Refinancing can drop this insurance and potentially lower monthly payments by hundreds of dollars, for those who qualify.
You want to change your loan type.
A refinance can make an adjustable or variable-rate mortgage more predictable. Refinancing your home loan to a fixed rate may be right for your situation. Check with your loan officer to discuss options.
Your financial needs have changed significantly.
Let’s say your salary has recently increased. If you hope to pay off your mortgage sooner, a mortgage refinance could provide you with a shorter loan term. You can also benefit from a refinance if you need to consolidate debt, i.e., converting a first mortgage and a home equity loan into one loan with a single monthly payment.
Your life has changed significantly.
Most homeowners aren’t aware that a mortgage may need a tune-up after a major life change, including getting a divorce. Even with a divorce decree, a lender is not obligated to remove an ex-partner from a mortgage. Fortunately, refinancing can be used to put a home loan back into your name only.
Refinancing a mortgage can also be a good idea when mortgage rates are low or if your home’s value has recently increased. Mortgage rates stabilized following the presidential election to the sweet spot of 4 percent but are predicted to rise by the end of the year. That reason alone may be enough for many homeowners to think about a refinance. If you can get a lower interest rate on your mortgage today, you’ll automatically lower your remaining monthly payments.
Are you missing out? Refinancing can be as easy as 1-2-3
You can prequalify for a refinance from your phone by taking a few steps:
- Download our free LoanFly app.
- Use the handy refinance calculator to estimate your savings. Or, request a new mortgage rate.
- Get your refinance started with a quick prequalification.
Refinance with a lender you can trust: There’s a reason our borrowers keep coming back.
Circling back to the missed savings: In 2016, a study co-authored by Jaren Pope, an economics professor at BYU, revealed that 20 percent of homeowners missed out on savings from a mortgage refinance after interest rates dropped. Pope calculated total losses for American homeowners at $5.4 billion — all because of a failure to refinance at an opportune time.
The median household in the study could have saved $160 a month for the life of their loan, for a grand total of $11,500 in refinance savings. Study authors referred to this as a “particularly large consumer financial mistake.”
Because there’s little urgency attached to a mortgage refinance, this is one area where we see most homeowners missing out on potential savings. Thankfully, there’s no hassle or face time needed to find out if a refinance can help. Your answers are in the app.
While refinancing could make a significant difference in the amount you pay each month, there are other costs you should consider. Plus, your finance charges may be higher over the life of the loan.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.