When was the last time you reviewed your current home mortgage? While investment choices are periodically reviewed for performance, many homeowners fail to do the same for the largest investment they will likely ever make.
Interest rates continue to be at near-historic lows which should prompt a look at the performance of your current mortgage. Is now the right time to refinance? There are several factors in play with this decision depending on your goal(s).
Goal 1 – Lower interest rate/monthly payment:
It’s often advised that if a home owner can lower their interest rate by 1%, they should consider refinancing. While this is true, it unfortunately sends the message that anything less than a full percentage point drop wouldn’t be enough. On a 30 year, $400,000 loan, the difference between 3.75% and 4.50% is $174 a month. Depending on the number of years left on the current loan and how long you plan to live there, a .75% reduction could absolutely make sense.
Goal 2 – Pay off loan sooner:
Many homeowners would like to own their home free and clear by a certain milestone (kids off to college, retirement, etc). One way to accomplish this is to restructure with a shorter loan term. While refinancing to a shorter term comes with an increased monthly payment, the overall savings over the life of the loan is significant.
Goal 3 – Shift from an adjustable rate mortgage (ARM) to fixed rate:
An ARM saves money when rates go down, but when they go up, payments can leap significantly. It’s a gamble. A fixed rate removes that uncertainly. With interest rates as low as they are today one should ask, “In the next few years, are rates more likely to increase or decrease?”
An online mortgage calculator (www.TexasMortgageCalculator.com) will very quickly run unlimited loan scenarios. Use the calculator to compare monthly payment and amortization schedules with various rates and terms.
So is now the right time to refinance? Contact a trusted mortgage professional to help answer this question. It’s certainly the right time to consider it.