Historically low interest rates make it possible to save thousands by refinancing your home loan. But that doesn’t mean a refinance is the right move for every homeowner. While many benefits exist, there are also potential drawbacks of a mortgage loan refinance. Weighing each of them in light of your specific situation can help you determine whether to pay off an existing mortgage with a new one.
Consider each scenario:
- Your credit score has improved since you first took out the loan. If your credit score has increased since you signed the closing documents, you might be eligible for the best available interest rates. Lower interest rates offer short- and long-term benefits. It could also mean you’ll pay less for the home overall if you shrink your repayment term or lower the rate on your principal balance.
Before applying for a refinance, check your credit reports and make sure they’re error-free. Inaccurate information can tank your score and keep competitive rates just out of reach.
- You earn more money now than when you first took out the loan. It’s common for household finances to change over a 15- or 30-year loan term. If your wages have increased, it might make financial sense to refinance your mortgage to benefit from a lower interest rate and a shorter repayment term. The sooner you pay off your home loan, the less you’ll pay in interest charges. Redirect the money saved toward other financial goals.
- Your home’s market value is rising quickly. Soaring housing values can help build equity, the difference between the home’s value and loan balances. A cash-out refinance might allow you to access the equity in your home to pay for large expenses, like a home renovation project or college tuition.
- You need predictable monthly payments. While low interest rates are currently available for both adjustable-rate and fixed-rate mortgages, securing a fixed-rate mortgage guarantees a stable housing payment over the life of the loan. If you enjoy a low adjustable-rate loan now, you might face higher payments as rates increase over time.
Estimate your monthly mortgage payment and total interest paid on any fixed-rate mortgage loan using CMCU’s Mortgage Loan Refinance Calculator.
- You plan to move soon. While there are several good reasons to consider refinancing, a pending relocation should cause you to rethink a mortgage refinance. It costs to refinance a mortgage loan. The time it takes to recoup those costs is often called the break-even period. If you move before then, you could lose money.
It’s possible to shorten the break-even period by selecting a loan with lower fees, like CMCU’s Mortgage Loan. Unlike other lenders who charge origination fees between 0.5% to 1% of the loan amount, CMCU charges a single $1,000 closing fee, regardless of the size of your new mortgage loan. Mortgage loan refinancing can help you achieve your financial goals.
Whether you need to lower your monthly payment or take cash out for a large purchase, Central Minnesota Credit Union can help you reach your goals. It takes only minutes to submit your online refinance application. Apply online today or call us at (888) 330-8482 to discover the best solution for your finances.