With the mortgage interest rate landscape continuously changing, you may be wondering if refinancing your current mortgage rate is a smart move.
Only you can decide if a refinance works for your financial situation, but it’s helpful to consider the refinancing costs and potential benefits you could experience.
Costs of Refinancing a Mortgage
Most of the time we look directly at the interest rate when deciding if we should refinance. While the interest rate is a critical aspect of the loan, it’s not the only cost and refinancing involves many fees that increase the cost of the loan.
Refinancing fees can vary depending on what state you live in, your credit score, the mortgage lender you’re using, and more. You may be responsible for paying:
● Government recording costs
● Appraisal fees
● Credit report fees
● Lender origination fees
● Title services
● Tax service fees
● Survey fees
● Attorney’s fees
● Underwriting fees
● Origination fee
Refinancing a mortgage typically costs between 3% to 6% of the mortgage, according to Freddie Mac. This means if you have a $200,000 loan principal, then you can expect refinancing closing costs to land somewhere between $6,000 to $12,000, but again, this number is influenced by several factors.
It’s essential you evaluate the cost of refinancing and compare how much you’ll save (if any) with your new loan. Then you can calculate how many months or years it’ll take for you to break-even with the refinanced loan.
Benefits of Refinancing a Mortgage
While refinancing does have a cost, the potential benefits may be worth it. These benefits can include:
● Lower interest rates: If you can secure a lower interest rate when refinancing then it can reduce your monthly payments and the amount of interest you pay over the life of the loan.
● Reduced monthly payments: By getting a lower rate or extending the loan term, you can lower your monthly mortgage payments, which in turn can help improve your cash flow.
● Shorten loan term: Switching to a shorter-term loan, such as a 30-year to a 15-year term can help you pay off your mortgage faster and pay a significantly lower amount of interest over the life of the loan.
● Access equity: You can tap into your home’s equity if you choose a cash-out refinancing option. This can give you cash for renovations, debt consolidation, or other financial needs.
● Switch loan types: You can change from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, providing predictable payments.
● Consolidate debt: Use refinancing to consolidate high-interest debts like credit cards into one lower-rate mortgage payment.
● Remove PMI: If your home has gained in value then refinancing might allow for the elimination of private mortgage insurance (PMI) costs.
● Qualify for better rates: If your credit score has improved since you took out your original loan then you may qualify for a more attractive interest rate.
● Potential tax benefits: The interest paid on a refinanced mortgage may still be tax-deductible, depending on how the funds are used.
Contact our mortgage lending experts at Space Age Credit Union today and find out if refinancing your current mortgage can be a wise move for your finances.
