Mortgage rates continue near record lows. If you are still paying a higher than average interest rate on your mortgage, it might be worth it to consider refinancing.
Saving Money on Your Mortgage
One of the reasons that many people refinance is to save money on the mortgage. Refinancing to a lower interest rate can help you save money over the life of your loan. Interest is a huge part of the cost of any mortgage. Using a mortgage refinance calculator can help you determine how much you could save in interest over time. In many cases, you can save one or two hundred thousand dollars. It depends on the difference in interest rates, as well as how long you will have the lower interest rate.
Another way that you can save money is on your monthly payment. Refinancing to a lower rate not only reduces what you owe overall, but it can also mean that you pay your mortgage over a longer period of time. If you have 20 years left on your mortgage, and you refinance to a 30 year mortgage, your monthly payment becomes much smaller.
In terms of cash flow, a lower monthly payment can be very helpful to your personal economic system. With the right refinance, your mortgage affordability improves, and you free up more money each month for other purposes. Whether you are trying to pay down debt, free up money for investing, or just trying to save on your mortgage each month, a refinance can help.
Another consideration, though, is to refinance to a lower term. With mortgage rates as low as they are right now, it’s possible that you can refinance to a shorter term for the same amount that you pay each month now, or for a very little bit more. Refinancing to a shorter term can mean an even better interest rate, and save you more money over time. Your shorter term can help you build up equity faster as well.
Paying off your mortgage early might be one of your goals, and refinancing to a shorter term can be one way to save even more money over time. But you have to be prepared to possibly pay a little more, and with the low mortgage rates, it’s a good idea to consider that you might be able to invest some of that money so that you end up with better returns.
In any case, refinancing can be a way to save money, whether you extend your term, keep it the same, or shorten it. You’ll also get a better deal if you have better credit. Run the numbers to determine whether or not it’s worth it for you. There are often loan costs associated with refinancing, and if you aren’t staying in the house long term, you might not recoup those costs. Look for a no-cost refinance, if possible. Then you don’t have to worry about breaking even.
Everyone’s situation is different, and you need to run the numbers to see what your options and costs are.
Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.