Homeowners have various reasons when refinancing their mortgage. It can be to lower the interest rate, to reduce the monthly payment, or to shorten the term of the loan.
You have a lot to think before you decide to go for refinancing. Here are some key points to help you know if it is the right time and option for you to refinance your mortgage.
Interest rates have gone down
Many homeowners in Phoenix, Arizona choose to refinance their mortgage when interest rates are at an all-time low. A lower interest rate can decrease your monthly payment, and consequently, increase your savings.
You want a shorter repayment period
Aside from decreasing your monthly payment, a lower interest rate can also shorten the term of your loan. Say, you want to cut your 30-year mortgage to a term of only 15 years. Refinancing to a lower interest rate can shorten your term in half with only minimal change in your monthly payment.
You want to lower your monthly payment
On the other hand, you may want to lower your monthly payment, even if you cannot reduce your interest rate. You can do this by refinancing your mortgage to a longer term.
You plan to stay in your home for a longer time
If you have plans of moving out after a few years, it may not be a good idea to refinance. Refinancing will cost a small percentage of the mortgage’s principal. If you do not plan to stay in your home for a longer time, the cost of refinancing may negate any potential savings you could generate from a lower interest rate or a shorter term.
Refinancing will only be a smart move for you if it will reduce your mortgage payments or shorten the term of your loan. Carefully assess these points first before you finally decide to go for refinancing.