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Your mortgage can easily be your biggest monthly expense. Depending on your situation, you may be able to reduce that burden by refinancing your mortgage.
It's not complicated, but it takes time to get it done so it's smart to go over the numbers and see if it the right move for you.
Reasons to Refinance Your Mortgage
Refinancing is a basically replacing your current mortgage with more favorable terms and rates.
Some practical reason to want want to refinance include:
- Lower Interest Rates: You can drastically reduce the amount of interest you pay over the term of mortgage. That money saved can be used for other financial goals, like investing or starting a business.
- Lower Monthly Payment: Refinancing can help you if you'rd on a tight budget. Please keep in mind that there are closing costs to consider (though it’s possible with some lenders to roll them into the new loan). For those with 20% or more equity, you may want to refinance to not only save money on interest, but to also get the PMI remove. You don’t have to refinance to get the PMI removed though.
- Pay off the mortgage sooner: Cutting down on the length of the mortgage can also save you a ton of money in the long run. The trade off is that you may have to pay just a bit more each month.
When we were looking to refinance years ago, we loved the idea of paying the lower interest rate.
Any time you can save ten of thousands in interest payments it's worth taking a look!
However there is more to the refinance progress that you two will need to talk about.
Should You Go Ahead Refinance Your Mortgage?
No one is going to care about your hard earned money like you do, so while it's nice to have a lender run the numbers, you always want to do that yourself as well.
Interest Rates Between The Old and New Mortgages
You may feel that lower interest rate is automatically better, but you may not get much benefit.
A small drop in your interest rate may mean that the refinance is more hassle than it's worth.
If you can shave a percentage point or more you may be able to keep the same payments with your bill pay, but apply the difference towards your principle.
Proposed Mortgage Terms
Sometimes we forget that refinancing can reset mortgages to another 30 or 15 years (meaning plenty of your payments goes towards interest for those first few years), so it might not be prudent to jump into another one.
‘On the other hand, if you have ARM mortgage, getting a stable fixed rate one can allow you two to plan your finances a little easier.
Estimated Closing Costs
This is another mortgage, so there will be closing costs. Some lenders will roll that into the new mortgage, but you still need to factor that in before you choose to move forward.
Once you two weigh these costs along with the benefits, you can then decide if refinancing is a good deal or if it's better to hold off until another time.
If you decide to refinance, one of the biggest things you can do to save money is to shop around to make sure you're getting the best rates.
There are plenty of free tools like Zillow's Refinance search that can help you to quickly find lenders.
You can click here to get started or you can do you own search if you prefer.
Thoughts on Refinancing
I'd like to get your take on the process. How many of you have refinanced recently? How did it go? Are you thinking of refinancing soon?