Is Now the Right Time to Refinance Your Mortgage?
When you first signed on the (many) dotted lines of your mortgage paperwork, you likely did so with the confidence that you got the very best rate at the time, based on the housing market and your financial situation. But now some time has passed and you’re wondering if you can save some money by refinancing your mortgage.
Check off as many items on this list that apply to you to find out if now is the right time to refinance your mortgage:
▢ Mortgage Rates Have Dropped
This is obviously the number one reason homeowners decide to refinance—why pay a higher rate when there are lower ones available? But how much lower should it be for it to be worth it? While the general consensus is to only refinance if the new rate is 2 percent lower than your current one, some lenders believe a one percent difference is reason enough.
▢ Rates Have Increased and You Have an Adjustable-Rate Mortgage (ARM)
An increase in rates may mean you’re paying more than you need to if your original mortgage has an adjustable rate. If your ARM isn’t working for you anymore, a fixed-rate mortgage can provide more stability.
▢ Your Credit Has Improved
One of the biggest factors your lender used when determining your original mortgage rate was your credit score. But maybe you’ve finally paid off that student loan or decreased your credit card balances and your score is more attractive than before. If the change is significant, you may be eligible for a lower rate now.
▢ Your Home Has Increased in Value
This refinancing strategy is similar to a home equity loan if you get a cash-out refinance. Your new mortgage will be for the new, increased value of your home, so you would be entitled to the cash difference between your original mortgage and this new one. People may choose this option to pay off other higher-interest debt or as discretionary funds—but it’s important to remember that this money is still part of a loan to be repaid in the end, it’s not “free” money, so spend wisely.
▢ You Have Private Mortgage Insurance (PMI)
If your original mortgage allowed you to put less than 20 percent down, you most likely are paying for PMI, which protects the lender in the event you default on your loan. Once you have paid off the equivalent to 20 percent of your home, including any down payment you originally made, you may be able to cancel your PMI when you refinance. (Note: If your original loan was a conventional mortgage, you can request to have your PMI removed when you reach 20% equity, or it will automatically fall off when you reach 22% equity without having to refinance. The FHA no longer allows borrowers to cancel FHA MIP after the LTV has reached 78%. You can get rid of FHA insurance by refinancing into a non-FHA-insured loan.)
▢ You Plan on Staying in Your Home for at Least Three More Years
Mortgage refinancing is not a “get rich quick” scenario. In addition to the time it takes to complete a refinance, it may be months or years before you break even. Discuss your future intentions for your home with your loan officer so they can help you determine if refinancing is in your best interest.
So, how did you do? If you’ve checked off enough items on this list to make you confident that now is the best time to refinance your mortgage, you need a lender who will put you above all: FirstCapital Bank of Texas. FCB Texas has the sound advice, fast answers, and competitive rates you need to save on your mortgage. We’re ready to move when you are: Learn more about refinancing with FCB Texas and apply now.