should i refinance

Why a refi could still be the right move

Bethany Ramos Finance, Homeowners, Refinance

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This is the kind of spring cleaning anyone can get on board with. Tuning up your mortgage could bring big savings for millions, helping you reach big-picture goals and get your finances in order.

Make 5 changes to make your mortgage cheaper

A mortgage tune-up typically comes in the form of a mortgage refinance. Refinancing can be used to lower your interest rate, change the length of your loan, or cash in on rising home equity. Potential savings depend on your financial picture, the current mortgage interest rate, and your goals for the next few years.

Refinancing happens when you pay off your existing mortgage and sign on for a new one. Making even one of the suggested changes below could free up funds if you’re no longer feeling satisfied with your mortgage. Tweaking numbers creates a ripple effect — lowering your interest rate may lower your monthly mortgage payment, for example — so that you pay less each month.

It’s true that refinances boomed when mortgage rates hit rock-bottom during the first year of the pandemic. But if you didn’t refinance then, did you miss your chance? Is the time still right?

Black Knight’s recent numbers confirm that refinances completed throughout the pandemic have brought homeowners over $14 billion in monthly savings. Even as rates tick upward, a large number of homeowners are still considered high-quality refinance candidates: 3.8 million homeowners are currently eligible to save.

Could you be one of them? Consider five smart ways to spring-clean your mortgage this year:

1. Polish up your payments.

If you agreed to a variable mortgage rate on your home, you may have seen your loan payments fall and rise. Are you ready for a stable monthly payment, something you can prepare for? You could refinance to a new, fixed rate, if you qualify.

2. Dust off the length of your loan.

Life changes as the years go by. Maybe you agreed to a 30-year loan term before you got a new job and a jump in income. Or, perhaps you wanted a 15-year loan term back when you lived in a two-income household, but now you’re not sure if you can make your payments. Talk to your loan officer about whether changing your loan term has benefits.

3. Sweep up some cash.

After months or years of payments, you may not realize how much equity you now have in your home. (The average homeowner is sitting on a whopping $56,700.) Your loan officer can tell you when it makes sense to pull that valuable equity from your home and convert it into cash — i.e. if you want to renovate, pay for education or other large expenses, or pay off debt.

4. Scrub down your interest rate.

Rates may be much lower than when you originally closed. If you refinance to a lower rate, you could save more money over the life of your loan. Refinancing to a percentage point lower, for example, might save you several hundred dollars a month on your mortgage.* Just remember: The potential savings need to offset the other fees associated with a mortgage refinance, such as closing costs.

5. Vacuum up your mortgage insurance premium.

If you financed your home without 20-percent down, you may have had to pay for Private Mortgage Insurance (PMI). But if you’ve been paying on your mortgage for a while now, and you’ve paid off 20 percent of your home, you might not need to pay PMI anymore. Once your loan-to-value ratio (LTV) reaches 80 percent, you can talk to your loan officer about removing it.

How to know when a mortgage refinance is right

There are a few key times in life when refinancing has major advantages:
  • When you’ve had significant life changes.
  • When you plan to move soon.
  • If you see market interest rates change.
  • When you’ve improved your credit.
  • When you make new financial goals.
  • If you need to make a big purchase.
  • When you’re changing the purpose of your home, i.e., into an investment property.
  • When you need a second mortgage or new line of credit.

In life, in business, and especially in finance, it’s all about identifying what works and adopting that strategy. One practice in particular that our loan officers have embraced from day one is scheduling a yearly mortgage checkup — to reassess current financial needs and re-examine the market interest rate.

Take cues from the industry professionals: If it’s been a year or longer since you’ve touched base with your loan officer, contact them now.

Once you’ve had your mortgage check-in, you can add this annual tune-up to your calendar, not unlike an annual wellness exam. By meeting once a year, you’ll be able to review all the changes that may have occurred in your life in the past 12 months — like getting a promotion, having a baby, or sending kids off to college — and make sure they’re reflected in your mortgage.

Want to stay up to date on savings?

If you’d like to trim the excess, reduce unnecessary fees, and potentially lower your rate: Reach out to your loan officer now. A quick call or email is all it takes to find out if refinancing could save you big on your mortgage.

*MBS Highway payment estimate, rounded to the nearest dollar amount. Rates listed (30-year fixed, as of 3/3/2022) are for illustrative purposes only and are subject to change.

While a mortgage refinance 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.

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