Mortgage rates change daily. Global and national events, stock market fluctuations, and amendments to U.S. Federal Reserve policies are just a few reasons rates might unexpectedly increase or dip to record lows. In March 2020, mortgage rates fell to an all-time low. When rates fall, homeowners should pay attention as they might benefit from refinancing their home loans at a lower interest rate.
A mortgage loan refinance allows a homeowner to pay off the existing mortgage with a new one, usually at a lower interest rate or with better repayment terms. There are other benefits to refinancing, which will vary based on each homeowner’s situation.
Refinancing can lead to a lower monthly mortgage payment, allow the homeowner to save $1,000s over the life of the loan, or both. But, a decline in market rates isn’t the only factor worth considering before you refinance your mortgage.
Here are four more.
1. Your Home is Worth More
If your home is worth more than when you first purchased it, you may have significant equity. Housing values have increased by 4% since last year alone. It’s possible to refinance your home while turning your equity into cash. When you complete a “cash-out refinance”, you can apply the excess funds to high-interest rate debt or home improvement projects that might further increase the value of your home.
2. You Have an Adjustable Rate Mortgage (ARM)
Adjustable-rate mortgages (ARMs) can be an excellent way to keep your interest rate down since the ARMs are often lower than fixed-rate loans. But, after the first few years, the rate can change according to market conditions and fluctuations in the economy. Varying interest rates can cause your payment to go up and down, which makes sticking to a budget challenging. Consider refinancing your home with a fixed-rate mortgage to enjoy a predictable monthly loan payment.
3. Your Goal is to Pay Your Mortgage Off Faster
Many homeowners refinance their homes with a short-term loan, e.g., changing from a 30-year term to a 15-year term. If you switch from a long-term to a short-term mortgage, you’ll likely pay less in interest charges and pay off your house faster.
A lower interest rate can help you save money over the life of your loan. This frees up cash to achieve other financial goals, such as building a six-month emergency fund. Remember that moving to a short-term loan usually increases your monthly payment, so be sure you can fit the higher amount into your budget.
4. Your Credit Score Has Improved
Your credit score influences the interest rate assigned to your home loan. If your credit score has increased, you might qualify for a lower interest rate or a better mortgage product. Check with your lender and shop around to see if you can secure a lower interest rate and better terms now that you have a more robust credit score.
Prince George’s Community Federal Credit Union makes it easy to refinance your home. Contact us at 301.627.2666 to speak to a Member Service Specialist today! We will review your situation and outline the best solution for you.
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