For many people locked into a current mortgage loan, looking to refinance can be a smart option. There are several market factors that may contribute to your determination regarding when it’s right to consider refinancing, and at City Creek Mortgage, our brokers can help you break down these factors.
What are some of the key signs that it might be time to refinance? Let’s take a look.
If all you’re looking for is to break even on a property, refinancing is often a great way to go. Calculating the breakeven rate for a refinance situation involves dividing the costs of refinancing (origination fees, closing costs and others) by the amount you’ll be saving each month. So for instance, if you’re taking a 30-year, $1 million loan from 7.5 percent to 4.5 percent interest, this would result in monthly savings of just under $2,000. If the refinance cost was, say, $20,000, it would take you roughly 10 months to break even.
If you have the cash to undertake a larger monthly payment, this is commonly a very good long-term saver. Changing from a 30-year loan to a 15-year term will up your monthly amount significantly, but due to reduced interest, it can save you thousands and thousands of dollars over the life of the loan.
In the past, a general rule of thumb for refinancing was two percentage points – if the market was this much lower than your current mortgage rate, refinancing was seen as a good idea.
In recent years, though, this may have changed. Larger mortgages and lower closing costs have led to many situations where even a 0.5 percent change can result in major cost savings, particularly if lender fees can be waived.
ARM Interest Rising
For people on adjustable-rate mortgages, benchmark interest rates may soon be going up. If this risk isn’t something you’re comfortable with, refinancing to a fixed-rate situation could be a good idea to get you more stability.
If you’ve built up equity in your home, there are times where you can use this to pay off outside debts carrying higher interest rates. This sort of consolidation does come with a few risks, though, so speak to your broker about the details.
Want to learn more about the common reasons for refinancing, or interested in scheduling a consultation? Speak to the brokers at City Creek Mortgage today.