rates
With Low Mortgage Rates, Why Now Is A Great Time For A Refinance Home Loan
With loan rates dropping to all time lows, many people are wondering if refinancing their mortgage loan is a good idea. Obviously, there are several reasons to think about a home refinance, especially with loan rates so low. A few reasons to think about a home refinance are lower monthly payment, reduce interest rate, pull out extra cash, change loan term and go from an adjustable rate loan to a fixed rate loan.
Loan Rates At All Time Lows
The current market has caused mortgage loan rates to drop to historic lows making this a great time to think about a home refinance. As long as there is a benefit to the new home loan, now is a great time to refinance your mortgage loan. There are several opportunities to save thousands of dollars in today’s loan rate environment and mortgage rates will not stay at these levels forever.
Time to refinance and save money has never been better, but remember, it is very important that you have a reason to refinance along with a benefit for the new mortgage home loan. Here are some of the benefits to refinancing a mortgage loan.
Lower Monthly Loan Payment
When considering refinancing your home to lower your monthly payment, you need to take into consideration how much your payment will reduce by. The rule of thumb is that the payment must be lowered by at least 5% in order for the refinance to have a benefit.
Lower Mortgage Rate
Reducing your payment is greatly affected by the interest rate. If you refinance your home and reduce the interest rate by at least 1%, then you will see a decrease in payment as well. Many people do not think about refinancing if the rate does not drop by at least 1%. Keep in mind, that even a slight reduction in rate can have a major impact on the mortgage.
Cash Out Mortgage Option
Many people will pull out cash during a refinance. The cash out home loans grant homeowners to refinance their existing home loan and get extra cash that can go towards consolidating debt, home improvements or anything else the mortal might want to use the funds for. Keep in mind that cash out home loans have a slightly higher rate and that a homeowner needs to take into consideration the overall financial picture. There are times that a cash out refinance loan could have a higher rate than the current mortgage, but the overall benefit for the home loan could outweigh the higher rate. For example, if a mortal has a $100,000 mortgage loan at 5% with a payment at $750 and has over $10,000 in credit card debt paying $500 per month, by refinancing into a new loan at 5.25% with a payment of $1000 will save this mortal $250 a month.
Change in Loan Term
Some homeowners refinance their home to change the term of the mortgage. The most common change is to go from a 30-year loan to a 15-year loan. The intent is to pay off the home loan quicker and save more money over the lifetime of the note. The payment could increase, but the benefit to this type of refinance is paying the home off earlier.
ARM to Fixed Rate Loan
Finally, another reason to think about refinancing is when you are taking an adjustable rate note and refinancing into a fixed rate mortgage loan. ARM loans can have a low rate, but the rate is variable and will change throughout the mortgage. ARM mortgages are designed for people who plan on only keeping the loan for a short amount of time, usually 5-7 years. By refinancing into a fixed rate loan, you are locking in the rate for the entire mortgage term.
There are some reasons to not refinance. If you are planning on selling your home in the next year or so, refinancing might not be the ideal option. You will have to think about the amount of money of refinancing and what the overall benefit will be.
With rates at all time lows, it’s crucial to consult with a home loan professional and speak about your mortgage options to see if there is a benefit to a refinance home loan.
David White specializes in Home Loans. David is a Senior Home Loan Advisor with over twelve years experience with refinance home loans. Also published at With Low Mortgage Rates, Why Now Is A Great Time For A Refinance Home Loan.
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