Low mortgage rates are nice, but are they enough to entice you to refinance your mortgage? Consider these common factors for refinancing that may apply to your situation, which can help define the goal: (Source: loanDepot)
How low do mortgage rates need to be?
Instead of just comparing mortgage rates, look at the savings between your current monthly payment and the projected refinance mortgage payment. Compare only the principle and interest payments on a loan amount that includes the closing costs, but does not include taxes, insurance, or cash out. Then decide if the monthly savings makes it worthwhile.
What about refinancing credit card debt?
Many credit cards charge a high rate of interest, compounded daily. If you have a large balance on credit cards, you may be able to save money by using a cash-out refinance mortgage. Consolidating high interest debts with a low rate mortgage could reduce your payments, and convert the debt into a tax deductible simple interest loan. Of course, you need to have sufficient home equity.
Do you need cash for personal expenses?
Refinancing with cash out can also provide money for personal expenses. As long as you have equity in your home, a refinance mortgage is one of the cheapest ways to access money at a low rate. You may have medical expenses, college tuition, or maybe your home is in need of some improvements.
How about a fixed rate mortgage loan?
An adjustable mortgage can serve a purpose, but eventually those mortgage rates can move up along with your payment. If you plan to keep your home for a long period of time, a fixed rate refinance mortgage can provide long-term savings over the life of the loan.
What about reducing the mortgage term?
A shorter term refinance mortgage can dramatically reduce the total interest paid on a loan. Your monthly payments may increase, but your overall savings can be large. You can build equity in your home much faster, and it makes sense if you plan on keeping your home for a long time.
Can you eliminate mortgage insurance?
If you paid less than 20% for a down payment when you bought your home, then you may be paying mortgage insurance, which is only for the benefit of the lender. Premiums are usually impounded in your monthly payment until you sell your home or refinance at 80% loan to value or less.
