A fixed mortgage loan is an excellent choice for many homeowners; however, what do you do when interest rates go down? It all depends on how much the interest rates have decreased and how long you intend to live in your home. Mortgage refinancing has the potential to reduce not only your monthly payments but the entire cost of your home. Basically, a refi is when you take out a new home loan that replaces your current one.
Refinancing is a great option, but only when it makes financial sense. For example, you wouldn’t want to refinance when rates have only dropped 1 percent because this wouldn’t make sense when you factor in the costs, such as closing fees. It would take a long time to recoup those costs; however, if there is more savings and you plan to live in your home for a long time, refinancing can absolutely benefit you.
Your Refinancing Options
As with traditional mortgages, you have options when it comes to refinancing. It all depends on your circumstance, and some refinancing packages may be more affordable than others. For example, if you are a veteran, then a refinancing package from Flagship Financial Group can offer you an Interest Rate Reduction Refinance Loan, which often has better terms and a less invasive credit check. (No appraisal, low credit score ok, no out of pocket expenses, etc.).
Here are some examples of the types of refinancing packages that may be available to you:
· Adjustable rate mortgages
· FHA positive equity refinancing
· FHA Streamline
· Fixed rate loans
· HARP refinance program
· Jumbo loans
· VA mortgage programs
The most important thing is that the lender is reputable. Do your due diligence and check reviews and ratings from other people who’ve secured a refinance package through that lender. Using Flagship Financial as an example again, you can check their Facebook and website for testimonials from customers to ensure they’re meeting their end of the bargain and truly providing people with affordable refinancing.
How to Save Money by Refinancing
Switch to a Short-Term Loan: When you’re paying off long-term loans, your monthly payments are low. Although to you this feels like saving money, the Federal Reserve has a different opinion. According to them, you save more when you pay your loan off in a shorter duration in order to save on interest rates. Consider that mortgage rates are lower on short-term loans, and you begin to see the institutions point. If you can afford to pay a little more now, you may want to refi to a short-term loan.
Remember: Short-term loans with lower interest rates are only advisable if you’re comfy with higher payments.
Get a Lower Interest Rate: Refinancing for lower interest rates can probably save you money on a monthly basis, as well as over the life of your loan. As noted before, borrowers are urged to consider closing costs and other refinancing costs before entering into a new loan.
Switch from an ARM (adjustable-rate mortgage) to an FRM (fixed-rate mortgage): With an ARM, payments fluctuate as interest rates rise and fall according to the market index, which is set by the Federal Reserve. Of course, when interest rates are low you’re loving life, but when they’re high you’re sweating those payments. It may be better to fix on one low interest rate for the life of the loan.
Refinancing your home does have the potential to bring about huge savings, especially now when interest rates are low. As evidenced above, you can save money in a number of ways, but it’s not always an ideal scenario. It’s all about timing and savings, but it’s something to think about.