Does a Drop in Interest Rates Mean it’s Time to Refinance?
Mortgage interest rates recently reached a 15-month low, with economists predicting they will hold steady. That’s excellent news for homebuyers, but what does it mean for current homeowners? Well, it may be a good time to consider refinancing.
Refinancing can help you lower your monthly payments, eliminate mortgage insurance premiums, or pay off your home faster. This option isn’t for everyone, though. Several factors can help you determine if it’s time to refinance.
How Long You Plan to Stay in Your Current Home
While refinancing with a lower interest rate could reduce your monthly payments, it does come with associated expenses, including closing costs and origination fees. If you’re planning to sell soon, these upfront costs could mean you actually end up paying more. But if you plan to stay in your home for several years, taking advantage of a lower interest rate can help you reap long-term savings.
Whether You Have Equity, and How Much
If you originally purchased your home with an FHA loan or a minimal down payment, you may be paying hundreds in monthly PMI— special mortgage insurance that protects your lender if you fall behind on your payments. If you now have at least 20 percent equity in your home, converting to a conventional loan could eliminate the need for PMI and reduce your monthly payments.
Your Budget and Cash Flow
If you have minimal debts outside your mortgage and can afford a higher monthly payment, you may consider refinancing with a shorter-term loan while rates are low. Refinancing a 30-year mortgage to a 15- or 20-year note could save you thousands of dollars in interest over the life of your loan.
If you’re still unsure whether refinancing is right for you, contact Open Mortgage today to speak with one of our loan originators—we can help you estimate the impact on your payment and determine your potential savings.