At some point, numerous homeowners ask themselves, “Should I refinance my mortgage?” And while some offers of lower interest rates and saving money may seem like refinancing is your best option, consider your unique financial situation before deciding.
You may be asking yourself, “where do I start in the process?” Here are three quick checklist items to help you get started on your refinancing journey:
Quicker mortgage payoff
If you’re setting out to pay down your mortgage loan faster than your original loan term, you may want to consider refinancing your mortgage.
For example, you closed on your home with a mortgage term of 30-years. However, your financial situation has changed, and you’re able to pay off more of your mortgage faster. You can opt to refinance your current mortgage loan for a shorter-term loan with a lower interest rate and pay more toward the principal of the loan itself.
Better interest rate and lower monthly payment
For those satisfied with their loan term, who just want a bit more on the monthly savings and better fixed interest rates, refinancing may be a great option for you.
Some mortgage lenders may allow you to refinance with them, especially if you’ve paid your monthly mortgage payment on time every month since your approval. Depending on your lender and their terms, you may be able to refinance your current mortgage for a better monthly payment with a lower interest rate and still maintain your loan term and schedule.
Your “break-even point” is calling to you
Before you decide to fully jump into refinancing for the better interest rates and lower monthly payments, find your break-even point. This is the point where your wallet starts to bulk up on savings over doling out for expenditures toward your mortgage payments.
For example, once you’ve calculated refinancing costs such as your bank costs, title and escrow fees, along with any other third-party expenses, you should have two numbers. One of those numbers is the amount you may be saving with refinancing and the cost to refinance. You’ll then want to divide the expected monthly savings into the overall cost to refinance.
Your equation may come out like this:
$5,000 (refinance costs) / $500 (savings) = 10 months before breaking even
In this scenario, you’d end up seeing savings around month 11. However, the break-even point will change based on your specific financial situation, lender terms and any other financial variables that may come into play.
Homeowners may refinance their homes for a variety of other reasons. Regardless, it’s always a good idea to make sure your finances will benefit from a home refinance. After all, it’s important to make sure this financial move benefits you and your household rather than hinder your financial health.