Should You Refinance Your Mortgage?

With mortgage interest rates reaching historic lows, many homeowners are taking advantage of this opportunity to refinance their current home loan. If you’re considering refinancing, here are some things to consider as you decide what works best for you and your budget.

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When you refinance, you are basically replacing your current loan with a new one. A refinance should offer better terms - like reducing your rate, shortening the term, or lowering your payment. Lenders rates and terms vary, so do your homework. Be sure to look at the costs and the benefits of refinancing.

First you’ll want to ask yourself some important questions:

  • What’s the difference between your current and potential new rate?
  • Do you want to shorten the term and pay off your loan sooner?
  • Are you trying to lower your payment?
  • Are you looking to cash-out the equity to pay for other expenses?
  • What’s it going to cost vs. how much are you going to save?

Let’s take a look at a few scenarios.

Lower your Rate or Payment

Just looking at the rate may not provide the full picture. Depending on the difference in the current and new rate, as well as costs to refinance, the savings may not justify the expense.

All home loans, including refinances, come with closing costs which can be 2-3% of the loan. If you’re not planning to stay put, you may not cover those costs before you sell. You could actually end up paying more than if you didn’t refinance.

However, if the refinance lowers your monthly payments and gives you some financial relief for other day-to-day expenses, or frees up money that can be put toward another financial goal, there could be an immediate benefit.

Shorten the Term

If you have been in your home and paying your mortgage for 5 years, 10 years, or more, on a traditional 30-year mortgage, refinancing to a shorter term, like a 10- or 15-year mortgage, could save you a lot in interest over time. And you can own your home outright much sooner.

“Pyramid’s Fastrack home loan program offers an uncomplicated, low-cost refinancing option for members looking to pay off their mortgage in as few as 10 years,” says Alice Eager, Pyramid’s Home Loan Specialist. “Our members enjoy being able to work with us here locally and our rates continue to be among the lowest in town.” Check out our current rates.

Tap into Home Equity

As home values increase, your home could be a great source of new money for renovations or lower-cost funds for other expenses. Cash-out refinancing will increase the overall loan amount. But with lower interest rates and possible tax deductibility* for home improvements, you could end up with some added savings value.

Other things to consider

Since refinancing requires applying for a new loan, lenders will pull your credit report through a hard inquiry, which could have a slight negative impact on your credit score. Don’t let this keep you from exploring loan options though. If you’re shopping around for rates, all inquiries will only be counted as one hard inquiry, typically if done within 30 days.

Before you dive into the process, consider what you hope to achieve and your own personal financial situation. If the time is right, refinancing could help you pay less interest over time or help you obtain a more manageable monthly payment.

 

Pyramid offers a number of home financing and refinancing options. If you would like to speak with one of our Home Loan Experts, give us a call at (520) 795-7950 or complete this Home Loan Inquiry form.

 

*This is not intended as tax advice. Consult your tax advisor.

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