Refinancing is a way to replace your existing mortgage with a mortgage under different terms. By refinancing, a homeowner can lower their monthly payment and save thousands of dollars in mortgage payments each year.
How to know when to refinance?
- Can you quickly recover the cost of refinancing? Decreasing your current interest rate by a full percentage point will definitely allow you to recoup the cost. If you can decrease your rate by at least half a percentage it may still be worth it.
- Refinancing is a great option for those who want to lower their mortgage payment and plan on living in their home for an extended period of time. Divide the cost of refinancing by the amount you will save on your monthly payment. This is the number of months it will take you to break even. If you plan on staying in your home longer than this amount of time, refinancing is a great option.
- Has your credit score improved since you applied for your current mortgage? If so, refinancing may enable you to get a better interest rate.
- Are you at the end of you adjustment period? Refinancing may help you lower your interest rate when your introductory rate expires.
- Do you want to build equity? If you are not as concerned about lowering your monthly payment, you may want to refinance to a shorter-term mortgage. This will allow you to own your home quicker and pay less in interest!