Recently, 30-year fixed-rate mortgages have been at historic lows1. If your mortgage was taken out within the past five years, you may be wondering if refinancing is a good idea. The fact is, refinancing your mortgage at a time when rates are low could save you hundreds of dollars on your family budget.
As a general rule, you may want to consider refinancing your existing home mortgage loan if you are able to get financing that is at least one full point lower than your current rate. Otherwise, it may not be worth having to pay the additional costs that often accompany a refinance such as points, appraisal fees, loan transaction fees, or financial advisor fees.
Should I be looking at a fixed or adjustable rate?
Interest rates may be low today, but that could quickly change without notice. If you're planning to stay in your home awhile and are fearful that interest rates may be on the rise, then you might want to consider a fixed-rate mortgage over an adjustable mortgage. That being said, an adjustable mortgage is better suited to people who desire a lower interest rate in the beginning, but plan on selling the home before the payments begin to increase and interest rates increase.
One way to refinance your home would be to take out your new mortgage for the same number of years as your existing mortgage loan. By doing this, you'll be able to immediately see the difference a lower interest rate will have on your monthly payments. That's extra money that you can either save or invest.
Another option would be to apply for a shorter-term loan. Yes, this could mean that your payments will be higher than your previous mortgage, but your home will be paid for all that much sooner. And just think of all that interest you'll save!
If you'd like to see how much you might be able to save by refinancing your mortgage, try giving one of the many online calculators a try. And if you're considering refinancing your mortgage and continue to have questions about whether or not refinancing is a good move for you, consult with your financial advisor or a mortgage professional.