If you’ve listened to the news lately, you’ve heard the buzz about refinancing. With interest rates running low, many financial advisors are recommending that folks look into refinancing.
Our team at City Creek Mortgage is available to give you some essential refinancing tips, fill you in on what all the current buzz is about, and let you know when you should consider a refinance on your mortgage.
Refinancing Basics from City Creek Mortgage
Refinancing your mortgage means you are looking to replace your current mortgage (and terms) with a new one. Typically, homeowners start to consider refinancing when mortgage rates drop.
Homeowners look to refinancing to meet specific financial goals like reducing their interest rates, lowering their mortgage payments, paying off their loans faster, or switching from an adjustable rate to a fixed-rate loan.
To refinance, you must qualify for a loan again – just like you did the first time. You’ll file an application, go through the underwriting process, and go to closing just like you did when you bought your home.
Before you start the process of refinancing, it’s a good idea to identify your goal. The goal will guide the process.
Reduce your monthly payment. If you’d like to pay less in your monthly payment, then you can refinance into a loan with a lower interest rate. You can consider extending the term of the loan from 15 years to 30 years. One drawback to extending your terms is knowing you’ll pay more in the long run – even if your monthly payment is lowered.
Pay off loan faster. When you refinance from a 30-year mortgage to a 15-year mortgage, you pay off your loan in half the time and end up paying less interest over the life of the loan. Monthly payments may go up with this type of refinancing, but you’ll end up paying less over time.
Switch from an adjustable to fixed-rate loan. Adjustable-rate mortgages can go up over time, but fixed-rate loans stay the same. Switching to a fixed-rate loan means you’ll be able to budget a little more easily because you can anticipate the same monthly payment.
The buzz surrounding refinancing now is because interest rates are at historic lows. Most financial professionals would advise a refinance if you can lower your current interest rate by one-half to three-quarters of a percentage point. You can substantially lower your monthly payment with even that small a reduction in your interest rate.
When to Refinance
Some will tell you that you shouldn’t refinance unless you’re able to lower your interest rate, shorten your loan term, or both. That’s not always true.
It’s important to note that refinancing doesn’t come without cost. Make sure your total monthly savings will offset the cost of refinancing. If you plan to move within two years, you’ll likely not be able to recoup the refinance cost.
You also need to consider your credit rating. If it’s not good enough to qualify you for the right refinancing loan, it’s not worth it.
Your specific goals, how long you plan to stay in your home, how much equity you have in the home, and your overall financial condition are essential considerations for refinancing.
There can be some downsides to refinancing. Depending on your goals, refinancing can increase your monthly payments. Your new terms may mean you pay more interest over time. There are closing costs to refinancing, too. Sometimes, those closing costs can be steep.
Be sure to talk with one of our City Creek Mortgage professionals to discuss all your options – good and not-so-good. Everyone’s situation is different, and what works for some may not be the best option for all. You can count on us to work with you to drill down and find the product that will work best for you.
About City Creek Mortgage
Our team at Creek City Mortgage works hard to be the most trusted, respected and loved mortgage company in Utah. We know what it means to be starting out in the world – as a new family, a young business owner, even a first-time homeowner.
If you have questions, we have answers. Our professionally trained team makes sure you understand the process of refinancing. We are here to help you navigate, answer your questions, and provide thoughtful advice and guidance.
We believe knowledge is power! We don’t want you to get into a new mortgage that won’t be a wise long-term financial decision. Talking through your financial goals and taking the time to answer all your questions is why we’re here.
City Creek Mortgage is a small, family-owned business that loves our clients, community, and employees. We provide a safe space to make big decisions and provide thoughtful advice every step of the way.