When Should You Consider Refinancing Your Mortgage?


In 2020, there has been a focus on interest-rate shifting in an effort to boost the economy amid the pandemic. While rates are currently low, homeowners are still debating if now is the right time to refinance. To help, take a look at some of the instances when you should consider refinancing your mortgage.

When You Have a High-Interest Rate Loan

For most homeowners, the goal of refinancing is to secure a lower interest rate. Even a 1 percent or 2 percent decrease in interest rates can make a significant difference in your monthly payments. If you have been looking at current market rates and noticed that there are loans that offer a lower interest rate than you have now, consider refinancing. Remember to take into account closing costs before deciding on a new mortgage loan.

When You Have an Adjustable Rate Mortgage

Adjustable Rate Mortgages (ARM) may seem like a good idea when you first buy a home, but over time, your rate can increase in a manner that is higher than the rate of a fixed-rate mortgage. That is because ARM rates are adjusted based on a multitude of factors, such as:

  • The mortgage market
  • Negative amortization
  • LIBOR market index
  • The margin

In the long run, an ARM may end up costing you more money than a fixed-rate mortgage depending on market conditions. If you want to take advantage of the lower rate, it may be prudent to refinance your mortgage.

When The Length of Your Mortgage is Over 15 Years

Homeowners who want to pay off their mortgage as soon as possible should consider refinancing their 30-year loan to a 15-year fixed-rate loan. It is ideal for homeowners to secure a 15-year mortgage with new payments that are no more than 25% of their take-home pay. However, if your current 30-year fixed mortgage has an interest rate that is low enough to compete with the 15-year rates, it’s worth considering making extra payments every month to shorten your payment schedule instead of refinancing.

When You Have a Second Mortgage

For homeowners with a second mortgage, under certain circumstances, refinancing can offer financial benefits. Refinancing your first and second mortgage in this instance will put you in a better position to handle other debts you have before you divert your resources to pay off your mortgages. An experienced escrow officer can further explain how this option may benefit you.

Are You Still Unsure?

If you’re still unsure if the time is right to refinance your mortgage, let us connect you to great lenders. We can refer you to a lender who can advise you on your refinancing needs. Contact us today to learn more about how we can help you with your title services.

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