Refinancing simply means paying off your existing mortgage and replacing it with a new mortgage. Why would someone do that? There are a few reasons that make refinancing your home a decision worth considering, the biggest reason being to save money.
When the interest rates are so low, homeowners sometimes choose to refinance to get a better interest rate, a shorter term or take out the cash equity in their home for a remodel, repair or other large life expense. Often, refinancing results in a lower monthly payment, and/or fewer years to pay.
When You Should Consider Refinancing
When interest rates are 1-2% lower than the rate of your current mortgage, this could make a huge difference for your monthly mortgage payments if you refinance. If you’ve paid your mortgage for several years, and your income has steadily increased, you might consider turning your 30-year mortgage into a 15-year mortgage with a refinance. In this scenario, your monthly payments will likely be a bit more, but your term is half as long so you’ll pay off your house faster.
Before considering a refinance, you’ll need to have been paying on your current mortgage for at least 12 months, and have at least 10-20% equity in your home. But explore this option with your lender if you think it might benefit you!