Refinancing is a big step and takes the same time and effort as when you applied for your loan in the first place. However, when the time is right, there are many benefits to refinancing. Setting a goal beforehand is always a good place to start. Whether you decide you want to take equity out of your home, have a lower monthly payment, or a shorter loan term, there are a few factors that can help indicate if it’s a good time for you to refinance.
Low Interest Rates
One of the biggest reasons homeowners decide to refinance is to have lower monthly payments. As interest rates continue to reach historical lows, you should compare your current interest rate to the average market rate. If it’s at least 1% higher, that is a great indicator that it’s time to refinance your current mortgage.
If your credit score was low when you first purchased your home, you most likely have a higher interest rate on your mortgage. If you are interested in improving your credit score, continuing to pay your bills on time or paying off debts will help and could save you thousands over the lifetime of the loan. It’s a good idea to get a credit check to see if you’ve improved your credit score since you could qualify for a lower rate.
Increased Equity in Your Home
You can also refinance to take equity out of the home. After the home equity line of credit is calculated and that money is used to pay off the original mortgage, the remaining balance is loaned to the homeowner. This can be used to make large purchases such as cars, home renovation, or to pay off credit card debt.
Adjustable Mortgage Rate (ARM)
ARMs are very attractive since they typically have a lower interest rate compared to fixed mortgage rates. However, these rates are only for a certain number of years. If you currently have an ARM and you are planning to stay at your home and you notice interest rates are starting to rise, it would be a good decision to look into converting your ARM to a fixed mortgage rate to secure a lower rate.
There are many reasons and benefits to refinancing your home and our team at George Mason Mortgage is here to help you. Contact us today with any of your refinancing questions!