When Sente Mortgage was founded in October 2007, the average rate on a 30-year fixed-rate mortgage was over 6.25%. Since then, things have changed dramatically, with more changes on the horizon. So with rates rising and falling, how do homeowners know if it’s the right time to refi?
There are a number of factors beyond rate to consider, the primary one being your goals. What’s your motivation to refi? Lower monthly payments, a fixed rate (versus an adjustable one), a shorter loan term, debt consolidation?
Whatever your ultimate goal, be sure to consider the following costs and benefits of refinancing:
- The costs: If you plan to stay in the home longer than it will take to recoup the closing costs, a refi may be worthwhile to lower your monthly mortgage payments. However, if you are replacing a mortgage that has 20 years left with a new 30-year mortgage, while you may reduce your monthly payments, you will ultimately pay a higher interest expense over the life of the new loan.
- The benefits: With the recent increase in home values, you may have reached 20% equity on your loan. Refinancing your loan now could remove your PMI, and although that doesn’t always equate to a lower monthly payment, it will allow you to pay more money towards the principal.
These are just a few things to consider. I urge you to contact me if you have any questions about your particular situation and, based on your personal financial goals, whether now is the right time for you to refi. Understanding the costs and benefits of refinancing, before the next big change in rates, will help you make a smarter decision about your money.