How to Decide if Refinancing is a Smart Move

October 30, 2021


How to Decide if Refinancing is a Smart Move

Refinancing can often be beneficial, helping to lower your interest rate, reduce your monthly payment, or in some cases, even allow you to pay that loan off sooner.

Still, it’s not right for everyone.

Are you considering refinancing your mortgage loan? Not sure if it’s the best move for your household? Ask yourself these six questions.

Could you qualify for a good rate?

If you’d end up getting a rate higher than what’s on your current loan, it’s probably not a good idea. Not only would it mean more in long-term costs, but it could also increase your monthly payment. So if your credit score has worsened, you have much more debt than you did when you originally applied for your loan, or market interest rates are notably higher, you may want to wait it out a bit.

Could you remove mortgage insurance?

Most loans require mortgage insurance if you put less than 20% down. The exact cost of this varies, but it adds quite a bit to both your monthly and annual costs.

If you’re in this boat — and your current loan carries mortgage insurance, refinancing might be a smart move. Just note: You’ll need to have at least 20% equity in the home to refinance and remove mortgage insurance — meaning you’ve paid down the loan to at least 80% of its appraised value.

Do you need a lower payment?

One of the biggest benefits of refinancing is that it can reduce your monthly payment. This can occur in one of two ways: 1) You qualify for a mortgage rate lower than what’s on your current loan or 2) you refinance into a longer-term loan than what you currently have. (Say you have 20 years left on your loan. Refinancing into a new, 30-year loan would spread that balance out further and lower your payment).

If you’re on hard times, your income’s been cut, or you just need more cash flow, refinancing and lowering your payment might be a good way to ease the tension.

Do you need extra cash to cover an expense or repair?

With cash-out refinancing, you can turn your home equity into cash, which you can then use any way you like — to pay for repairs or renovations, to cover college tuition, or even just pay for sudden bills and expenses.

Here’s how it works: You refinance into a loan larger than your current mortgage’s balance. Once you close, you get the difference between those two balances back in cash.

Just keep in mind that it may make your monthly payment go up. It could also extend your payoff timeline depending on the term you choose to refinance into.

Do you have an adjustable-rate mortgage?

Refinancing is always a smart move if you have an adjustable-rate mortgage — especially one that’s nearing the end of its fixed-rate period. When this period ends, your mortgage rate could rise, sending your payment up, too.

To avoid this, you can refinance into a new adjustable-rate loan or, as many homeowners choose to do, a fixed-rate loan. These offer a little more stability and come with consistent rates and payments for the life of the mortgage.

Have your goals or budget changed?

If you’ve experienced a change — either in your household budget or your goals as a homeowner, then refinancing could be smart, too. For example, if you received a raise at work and now want to pay off your loan as quickly as possible, refinancing into a shorter-term loan can help you do it. If things moved the other direction, refinancing can again help you, this time by reducing your payment, interest rate, or both.

Should you refinance?

There’s no right or wrong answer when it comes to refinancing. If you’re not sure whether refinancing is the right move for your household, get in touch with Premier Nationwide Lending today. We’ll walk you through it.

Premier Nationwide Lending is an Equal Housing Opportunity lender. Sponsored by NTFN, Inc. 6201 West Plano Parkway, Suite 100, Plano, TX 75093 | NTFN NMLS 75333.

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