If you’ve ever made a real estate purchase (and chances are you may have made more than one in your lifetime), you probably have experienced the headache of selecting the best mortgage loan. Despite your best efforts, loans that were once structured as the best fit might not be so beneficial at your current life stage. Consult the following checklist to see how your mortgage loan is
holding up — or if it’s time to consider refinancing.
Is the rate you can secure today lower than the rate you currently pay?
In recent years, the widely accepted rule of thumb for refinancing is that if you can secure a fixed interest percent that is 0.75% to 1% lower than your current rate, you may be a good candidate for refinancing. Any less and you might not make back the anticipated savings once you take refinancing closing costs into account.
Have your financial means changed for the better?
Oftentimes, a first home purchase coincides with lower earning years. The down payment that best suited your lifestyle at that time might be lower and stretched out for a longer term, often a 30-year mortgage. If your financial capacity has improved, it may be time to refinance to a shorter term mortgage, such as a 15-year mortgage. Plus, when in conjunction with a lower loan rate, your monthly payment may increase only slightly.
Is your current mortgage an Adjustable Rate Mortgage (ARM)?
Although often a lower rate in the beginning of the loan, ARMs can end up with a consistently higher rate than traditional fixed rate mortgages. If your current ARM is making you uneasy about future interest rate hikes, consider switching to the predictability and constant rate of a fixed rate mortgage.
Are you ready to invest some time?
Refinancing is not a short-sighted game. In fact, the average refinancing of a home takes anywhere between 20 to 45 days to complete, so it’s best to be completely onboard before you get overwhelmed. With the counsel of a trusted financial advisor, you’ll need to calculate the overall cost versus the cumulative savings you would gain in order to gage if the refinancing process is worth the effort.
If you answered yes to any of these questions, it may be time to consider whether your loan is still working for your lifestyle. If refinancing is in your future, consult a trusted financial advisor to discuss your options.