Should I Refinance My Mortgage?
When interest rates start to fall, homeowners may begin to consider the benefits of a mortgage refinance to a lower interest rate. There are many reasons to refinance a home, but changing interest rates can spark the conversation along with shortened loan terms, debt consolidation or a new loan structure. When you choose to refinance a mortgage, you’re paying off an existing loan and replacing it with a new one. But is refinancing worth it? And when is the best time to make this decision?
When to Refinance Your Home
How long do you plan on staying in your home? That’s the first question you’ll want to settle before making a move to refinance. There’s no sense in going through the steps if you’re planning a move anytime soon. Making sure you understand your home’s current value and new borrowing obligations are important, too. It’s also worth it to consider your financial goals and if refinancing will help you reach them.
What about your credit score? In order to lock in a better interest rate, your score should be in good shape. According to Nerd Wallet, mortgage interest rates don’t always fall lockstep with current interest rates set by the Federal Reserve. But, if you can prove steady income and post a solid credit score, you’re more likely to get a competitive rate.
So, it’s safe to say that even if interest rates are dropping or at an all-time low, it’s important to look at the big picture before making the decision to refinance a mortgage.
Is Refinancing Worth It?
Well, this all depends on your financial goals. Here are some reasons that might make refinancing a home worth it:
- Lower Interest Rates: It’s common to refinance to a lower interest rate, which is a desirable outcome of the refinancing process. Generally, if you can lower your interest rate by 1%-2% experts recommend this as an incentive to go for it. When you refinance to a lower interest rate, you have a variety of options to shift your loan terms, lower your monthly payment, keep it the same or make payments towards interest or principal. Whatever you choose, reducing your interest rate will help you save money in the long term.
- Make the Move to a Different Loan Structure: When you refinance a mortgage, you have the option of changing how your loan is set up. That means you’re free to switch to a fixed-rate mortgage or an adjustable-rate mortgage. This move makes sense based on how long you plan to stay in your home and the new rate you’re approved for. You can also reach out to a mortgage counselor who can help you make the best decision for your mortgage goals.
- Eliminate Private Mortgage Insurance (PMI): Private mortgage insurance is common for first time homebuyers who put less than 20% down, which increases your monthly expenses. As a home increases in value, borrowers can cancel their PMI with a mortgage refinance.
- Borrow a Portion of Equity: Since you’ve been making regular payments and your home’s value has grown over time, you may have the option to borrow on equity. Equity is a great resource to draw from when you need extra funds. Refinancing a home allows you to draw on an equity line of credit and allocate those funds the way you want. They could go towards home improvements, college tuition, or consolidating other debt.
Whether you’ve made the decision to refinance to a lower interest rate, eliminate PMI or borrow a portion of equity, it’s important to choose a trusted and reputable lender. WesBanco has a 150-year history when it comes to lending mortgages and refinancing. So when it comes time to refinance a mortgage, you’ll want to consider not only your financial goals, but who you want to partner with for next steps. We’re here for you when you’re ready.
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Content is for informational purposes only and is not intended to provide legal or financial advice. The views and opinions expressed do not necessarily represent the views and opinions of WesBanco.