The majority of homeowners today have mortgage rates below 5%. During the pandemic, mortgage interest rates hit historic lows and a rush of homeowners were able to refinance with lower interest rates.īut with current average rates sitting near 7%, getting a new home loan isn’t as attractive. When it makes sense to refinance your mortgageĪ general rule of thumb is that it makes financial sense to refinance your mortgage if you can secure a rate that’s at least 1% lower than the one you currently have. If you have an FHA loan, you may want to switch to a conventional mortgage to eliminate the need for mortgage insurance. For example, you may have an adjustable-rate mortgage but want the security of a fixed-rate mortgage. Because of this, you want to make sure you’ll be in the home long enough to recoup those costs.Īnother big reason to refinance is to switch the type of mortgage you currently have. Additionally, mortgage refinancing can run you thousands of dollars in closing costs. But even if you can get a lower rate (which may be difficult in today’s environment), there are other factors you’ll want to consider before you refinance a mortgage.įirst, you’ll need to have enough equity in your home, typically at least 20% to qualify for a refinance. What to know before refinancingįor many people, the primary objective of refinancing a mortgage loan is to lock in a lower interest rate and save money by having a smaller monthly mortgage payment. With a cash-out refinance, you’re getting a new loan that’s worth more than what you owe on your initial mortgage and pulling out equity. A rate-and-term refinance alters the interest rate or term (or sometimes both) of an existing mortgage, and equity isn’t taken out of the home. You have two basic options when refinancing a mortgage: a rate-and-term refinance or a cash-out refinance. Although a new refinance loan is slightly less complicated than an initial mortgage, a mortgage refinance can still take between 30 to 45 days to complete. Similar to when you first bought your home, the mortgage refinancing process also involves a lot of paperwork, credit and financial checks and closing costs. The main difference is that instead of shopping for a new house, you’ll keep your current home. Just like getting a mortgage, you’ll need to apply for a loan, have a home appraisal and pay closing costs. After the fixed rate period, your payment may change based on the change in the index used to calculate your interest rate.When you refinance, a new home loan replaces your existing mortgage. * For example, for a 5/1 ARM, the fixed rate period is 5 years, or 60 months. Note that some of the reduction in payments may reflect extending the due date on your loan rather than a lower interest rate.Ĭall our helpful mortgage bankers at 1-88 to start the conversation about whether refinancing is right for you. In addition, you may want to discuss with a Discover mortgage banker any potential effects of changing from extending the term of your loan(s). It's important to consider upfront closing costs on your new loan, and the time it will take to recoup those costs. The amount above can give you an idea of the estimated monthly reduction in your mortgage payment you could achieve during the initial, fixed rate portion of your loan period* by refinancing your existing mortgage at the terms you selected. You selected an adjustable rate mortgage or ARM. If you lower your payments too, however, you may pay higher total interest even though your rate is lower, because the debt If your refinance is at a lower rate than the previous loan, you may save money if you continue making the same or Note that some of the reduction in payments may reflect extending the due date on your loan rather The time it will take to recoup those costs. It's important to consider upfront closing costs on your new loan, and Based on the information you provided, the amount above can give you an idea of the estimated monthly reduction in your payment you couldĪchieve by refinancing your existing mortgage at the terms you selected.
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