With mortgage rates on their way back up, many homeowners are concerned they missed their opportunity to refinance. While it is true that the record low rates have passed for now, you may still benefit from refinancing your mortgage depending on the details of your circumstances.
There are a few reasons that you may still be a good candidate for refinancing and we have highlighted them here.
1. You are paying PMI
Private mortgage insurance (PMI) is an additional fee borrowers pay each month if they have put down less than 20% on the mortgage and have yet to pay down enough of the principal to equal 20%. If this is you, refinancing may be worth your while.
PMI monthly premiums vary, but it is common for them to equal hundreds of dollars per month. This premium is required to secure the loan in the case of the borrower defaulting. You can wait to get out of PMI until you have paid 20% of the principal, but this is likely to take years, or even decades, depending on your mortgage. On the other hand, if you have enough equity in the home to cover that 20%, you can refinance and stop paying PMI right now.
To find out whether you are likely to benefit from refinancing out of your PMI payments, talk with a loan officer to get expert advice.
2. Your current interest rate is over 6%
While interest rates are not as low as they were just last year, they are still far lower than they have been historically. If your current interest rate is over 6%, you may be able to qualify for a lower interest rate, which will translate into both a lower monthly payment and less money paid over the life of the loan.
Interest rates are always fluctuating, so if you think this criteria applies to you the best thing to do involves two parts:
- Make yourself the most attractive borrower possible by making sure your credit score is as high as possible.
- Talk with a loan officer to get an idea of what you might qualify for today.
3. There is a significant amount of equity in your home
Another factor that may mean refinancing will benefit you is the amount of equity in your home. The real estate market has been so hot in the past two years, many homeowners have a significant amount of equity in their homes that can be accesses via refinancing.
There are a variety of types of refinancing that allow the borrower to utilize equity to fund other purchases or projects. These include:
- HELOC: A Home Equity Line of Credit, where you can borrow money from your home’s equity as you need it. This is particularly useful if you are unsure of the amount you need. It acts similarly to a credit card, allowing you to borrow only the exact funds you need for remodeling, funding college, or another major expense.
- HEL: A Home Equity Loan, which means the borrower takes out a loan from the home’s equity. This loan is a fixed amount, in contrast to the HELOC, and works well for a one time purchase with a predictable price tag.
- Cash-out refinance: If you have significant equity in your home, you may be eligible for a cash-out refinance, where you take out cash from the home’s equity. To use this cash in a financially wise way, have a plan in mind for how you can put it back into the value or your home via remodeling, renovating, or adding on to the property.
If it seem like the timing is right for you to refinance, the next step is scheduling a time to talk with a loan officer. There is no risk involved in finding out if refinancing is right for you, and the potential positive financial impact is worth a few minutes of your time!
More Information for Homeowners
How To Know How Much Equity I Have In My Home
How Best to Take Advantage of Your Home Equity Gains
What Should A Homeowner Do When The Mortgage Forbearance Is Over
3 Ways to Know if Refinancing is Right For You
