Are you thinking about refinancing or wondering what the benefits might be to refinance? The many reasons people refinance their loans are to get a lower interest rate, covert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, or vice versa, shorten the term on the mortgage, tap into the home’s equity to finance a larger purchase, and the desire to consolidate debt. The sole purpose is to save money, but this is not necessarily always the case. Refinancing does not come free and has many costs associated with it, so doing your research and determining if refinancing is truly a benefit is vital.
Interest rates are the primary reason people refinance. A 3.875% 
fixed rate of a 170K loan equals out to be more than $500 in interest each month! That $500 is solely interest, nothing to do with an actual house payment. Todays rates are typically in the 4-5% rates, so imagine the interest. If you see that the rates are dropping and get to the point where the interest rate is at least 1% lower than your rate, it might be a wise decision to refinance.
Converting from ARM to a fixed-rate or vice versa is another factor. Interest rates fluctuate based off of the economy. A good real estate tip is to compare interest rates to interest rates within the past 12
months. If you believe you have a decent rate, it’s advised to go with a fixed-rate mortgage because you never know when the rates might increase. On the other hand, an ARM could decrease, increase or stay the same each month. People who choose this option typically don’t plan to stay in the home for very long and use this option because the rates tend to be lower than a fixed-rate. If you had chosen ARM and ended up staying at the property longer than you thought and the rate is a lot higher than the current fixed-rate, it may be wise for you to refinance to a fixed-rate.
Shortening the term of the mortgage can drastically decrease the amount of interest you are paying overtime. Keep in mind that if you go from a 30-year-fixed-rate to a 15-year-fixed-rate, your monthly payment will be higher. The smart option is to do this while the 
current interest rate is lower than your original rate. There is another way to shorten your mortgage without having to refinance and paying all the fees. It is simply where you prepay your mortgage. Each month instead of paying that $900 where only a few hundred goes to principle, pay $1500 or whatever extra you can afford. That extra money you put in goes just towards principle. You might not think it will make a big difference, but a little bit more each month will add up overtime and save you a large sum on interest.
Even though all these options could potentially save you a lot of money, you have to keep in mind that refinancing means paying that 3-6% of the loan’s principal, doing another appraisal as well as application and title fees. You could also be paying more in the long run. For example, if you have been paying on your 30-year-fixed-rate loan for five years and then you refinance for the same loan with a lower interest rate, it could decrease your monthly payments, but you also just gained five years back. These are the type of things you must keep in mind when determining the benefits.
A mortgage lender will always be there to help guide you through the process, but it’s always good to be educated and know all of your options.
If you have any interest in buying or selling, we would be more than happy to help. PRODUCER Realty can get your home sold in less time and for top dollar. We deliver exceptional results for our clients by providing world class service. Call PRODUCER Realty today at 864-438-5050.
