The Benefits of Refinancing a Home Mortgage

paperwork

For people looking to increase their financial flexibility or limit a major financial burden, a mortgage refinance can be a great way to go. While the term has taken on a negative connotation over the years, this is often very far from the case – refinancing can be a perfect outlet for certain completely standard financial decisions.

At Altius Mortgage Group, we have years of experience helping our customers with refinancing options and many other elements of the mortgage process. Here are a few reasons why you might stand to benefit from refinancing your home:

Lowers Payments

The first item on our list is also easily the most popular reason why people look to refinance. Mortgages exist over very long periods of time in most cases, and it’s completely natural for financial circumstances to change over years and even decades.

Simply, if mortgage rates are significantly lower than they were at the time when you first signed your mortgage agreement, it could be time to refinance – a general industry benchmark is a two percentage point difference between the current rate and what you originally paid. There are other things you can utilize those lower rates for, which we’ll get into momentarily, but most people simply choose to apply these to lower monthly payments and gain a bit more financial flexibility.

Altering Loan Type

Adjustable-rate loans often look more enticing than fixed-rate loans when you first get started. Their interest rates are lower to begin with, and the potential for these rates to drop even further if the market is robust is very appealing to many people.

In a lot of cases, though, the market doesn’t cooperate and you’re left with a difficult situation when your rates rocket upward. Refinancing your mortgage is a way many people choose to switch from adjustable-rate to a fixed-rate mortgage, which provides more security.

Credit and Equity

Refinancing is also a good way to up your credit – lowering monthly payments helps you make them on time, which in turn raises credit score. Some people are even able to refinance more than once with great success because they leverage their better credit score into yet another lower monthly rate.

Another avenue some people choose down these same lines, though, is using what’s called cash-out refinancing to recoup some of the equity they have in their home. This is perfect for people who have a large lump sum or emergency payment to make, even if it’s just debt from another financial dealing that might help the credit score. For people who have done well enough financially to stay ahead of their mortgage curve, capitalizing on this equity in ways like this can be very profitable in the long run.

Want to learn more? Our Altius Mortgage Group brokers are standing by.

Who Should (and Shouldn’t) Refinance Their Mortgage

couple reading paperwork

Have you heard about the record-low interest rates on home loans these days? Unless you’ve been living under a rock, chances are you have seen the advertisements, received some direct mailers, and had home mortgage companies telling you that you should refinance because rates are so low right now. They are pretty low, and they have been for a while, but interest rates aren’t the only factor you should be taking into account before you decide whether or not to refinance. There are some situations when refinancing is either a bad idea, or it could end up costing you more than you save.

Long-Term Home Ownership

If you’re planning to sell your home in the next few years, chances are the costs and fees associated with refinancing your mortgage will outweigh the savings over time. For most homeowners, the “break-even” point after a refinance is a few years, so even if you save $100 a month on the payment, if you add $5,000 to the total amount you owe, it will take you 50 months (that’s over 4 years) to reach break-even. If you’re planning to stay in the home forever—or at least for several more years—then the cost savings is likely worth it because you’ll get to continue taking advantage of those interest savings for the life of the loan.

Not Enough Savings

The main reason (it could be argued one of the only reasons) to refinance is to save money on interest, but before you go ahead with the process, take a minute to calculate exactly what you will save with the mortgage refinance and decide whether it’s worth the effort and the cost. Most refinance loans include some additional loan processing costs, and you may not be able to qualify for an interest rate much lower. If you’re going to be saving $15 or $20 a month, that’s only a few thousand dollars, and might not even be much more than the fees.

Early Loan Repayment

If it’s financially feasible, it’s a good idea to try and pay off your home mortgage before the 30-year term is up. Some homeowners think that the best way to do so is to refinance into a 15-year loan, and in some situations that is true. However, while that guarantees a shorter term for the loan and may not have a lot of additional monthly cost involved, it might be just as well to take the difference between a 30-year and 15-year payment and pay that toward principal. You’ll still pay off the loan early and achieve those cost savings, plus if something unexpected happens, you won’t be locked into a higher monthly mortgage payment.

Adjustable-Rate Mortgages

One time when it definitely makes sense to refinance is at the end of an adjustable-rate mortgage period. An ARM allows you to have a lower interest rate at the beginning of a home loan, but eventually it goes up according to market rates. If the low-interest part of your ARM is coming to an end, now is the ideal time to refinance.

Cash-Out Options

If you have equity in your home and other debt that you need to pay off, refinancing with a cash-out option will allow you to take the extra money made from the refinance as cash and pay down other debt. In many cases the interest rate you’ll pay on a home loan will be far lower than you would pay on a revolving credit account, so the move will save you money and give you more time to pay down the loan (a 30-year mortgage term). Make sure you’re opting for the cash-out choice because it’s the best choice for your financial situation, though, and not just because you want some extra spending money.

To find out more about refinancing your mortgage and talk to an expert who can help you decide if it’s the right move, call Altius Mortgage today.

Is This the Year You Should Refinance?

 

By now you have probably heard about the historically low interest rates that have been in the housing market for the last few years, but do you know if you should be taking advantage of these rates? Many mortgage lenders will advertise for anyone and everyone to come and refinance, but it’s not actually the right move in every situation. Here is how you can figure out if it’s the right move for you.

Analyze the Differences Between Loans

Start with an honest appraisal of your current loan situation. Write down:

  • Your monthly payment, including principal and interest (not including homeowner’s insurance, since this cost is more or less fixed regardless of your interest rate)
  • Your current interest rate
  • The remaining balance on your home loan
  • Remainder of your loan term, in years

Next, you want to look at the new loan you will get if you refinance. Write down:

  • The new interest rate you will get (don’t just estimate based on the lowest available rates, talk to a mortgage loan company in Salt Lake City to help you get an accurate estimate of what you might be able to get approved for)
  • The remaining balance on your loan (the amount you will be financing)
  • The term of your new loan, in years
  • Total closing and other costs

Calculate Your Break-Even Point

Armed with this information, the next step is to calculate exactly how long it will take you to “break even” on your new loan. If you refinance, you will save money on your monthly payments with the lower rate, but you will also have some additional closing costs. You may choose to pay these up front in cash, or have them rolled into your new home loan. Either way, you will need to calculate how long it will take for the savings on your loan to make up for the costs.

For example: if your new payment is $100 less than your old monthly payment after a refinance, and the closing costs are $4,000 total, it will take 40 months to break even on the refinance.

Pay Attention to the New Term

When a new loan begins, the bulk of your monthly payments will go toward paying the interest. Over time, as you pay down the principal balance, the payment shifts toward paying more to principal and less to interest. If you refinance and start the clock over again on your loan, keep in mind that even with some monthly savings, you might end up paying more on the house total over the life of the loan than you will save with a refinance. If you are more than halfway into your loan, talk to a lender about whether or not it makes financial sense to refinance.

Timing the Market

Rates for mortgage loans have been hovering around historic lows for about five years now, but since they are not at their lowest, some homeowners are holding on and waiting to see if they go lower. While you might get lucky and see rates go down even more, what’s more likely is that rates will go back up—and most people know that it’s not a question of if they go up, just when. For that reason, now is as good a time as any to lock in your low rate and make sure you save.

Refinancing doesn’t make sense for everyone. Those planning to move in less than three years, or people with poor credit who would not be able to significantly lower their rates, as well as homeowners who only have a few years left on a mortgage, are usually better off to stick with their current loan. In just about every other situation, refinancing can have many benefits. Talk to Altius Mortgage today to find out if it’s right for you.