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Is Now a Good Time to Refinance My Mortgage?

By: Janet Smith, Vice President of Mortgage Operations

Posted on 11/23/2020 7:51:31 AM

A two-story, light blue home with white trim and a small, well-manicured lawn at dusk.

2020 has brought a lot of surprises and changes to most families. And if you’re like many homeowners, you’ve noticed that interest rates are historically low. With rates this low, it might seem like a great time to refinance and ultimately save some money.

But just because interest rates are low, does that mean it’s the right time to refinance? Sometimes, the answer to that question is yes. But, not always. And in this article, we’re going to help you figure out if now is the right time to refinance your mortgage.

Reasons to Refinance Your Mortgage

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First, let’s talk about why you’d want to refinance in the first place. The most obvious, and most common reason is you want to save money. Locking in a lower interest rate will do the trick. But, that’s not the only reason to refinance.

You might also consider refinancing to take the opportunity to change your loan type. Of course, this choice is often still about saving money. Many times, adjustable rate mortgages are cost-saving in the beginning, with interest rates set below market rates. But, as the loan ages, that variable rate increases and can surpass what you would get with a fixed-rate loan. When this occurs, many homeowners refinance to change their loan type to fixed-rate.

Also, if you have mortgage insurance and your current loan to value (LTV) is less than 80%, a refinance could remove the additional monthly premium. If you got an FHA loan after June 2013, you likely have permanent mortgage insurance, regardless of what your loan’s LTV is. So many with FHA loans will eventually refinance to remove the additional cost.

Finally, homeowners will sometimes refinance their home using a cash-out refinance so they can use their equity to make home improvements. This type of refinancing often comes with higher interest rates, more closing costs, and longer loan terms. For this circumstance, it’s usually better to take out a home equity loan, but sometimes a cash-out refinance is the better deal.

Questions to Ask Yourself Before Refinancing

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So, if you’ve got a good reason to refinance, and you think now’s a good time because of low interest rates, there are a few personal considerations to keep in mind. Even though interest rates are low, and you could potentially save money each month, there are a couple questions to ask yourself first:

  • Will you be moving anytime soon? – If you’re going to be moving soon, keep in mind that you’ll be paying closing costs on your new home. You often have to pay some upfront costs to refinance, and if you’re not staying in your house for several more years, the savings often won’t be worth it. A refinance calculator can help you make this determination.
  • Has your home increased in value? – Your home’s value might not have increased as much as you suspect, especially if you’re in a newer mortgage. There are many factors that increase a home’s value, so before you refinance, make sure you’ve built some equity.

The Best Time to Refinance Your Mortgage

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Once you’ve got the answers to the above questions, and it looks like you’re in a good situation to refinance, then refinancing your loan will likely save you some money. The rest is simply timing. Watch the market for low interest rates. When they drop, it’s a good time to refinance. As long as your credit score has remained the same or improved, then you’ll be able to lock in lower rates and save on your monthly payment.

Keep an eye on mortgage rates, and when you’re ready to refinance, reach out to our mortgage champions at 904.371.8150.

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