With Historically Low Interest Rates, It May Be Time to Refinance with Morgix!
What is Refinancing?
Mortgage refinancing refers to paying down your existing loan by replacing it with a new mortgage. Most people refinance so that they can change certain aspects of their mortgage, such as the interest rate or loan term.
The refinancing process can help you to lower monthly payments once you have some equity in the home, which is the difference between the value of the house and what remains on the mortgage.
Refinancing your mortgage is not free – it requires loan origination costs just like your original mortgage did, so it is important to consider all the implications of refinancing before moving forward.
Reasons to Refinance
Lower Interest Rates
There are many reasons to refinance your mortgage, but perhaps the most common is to get a lower interest rate on your loan. Generally, if you can save at least 1% interest, it is worth considering refinancing.
For example, if you have a $200,000 mortgage with a loan term of 30 years and a 4% interest rate, your monthly payment is about $955. If you can refinance that same mortgage for 30 years at a 3% interest rate, your monthly payment will be $843.
This translates into savings of just over $110 per month. While that may not seem like a significant amount, it will add up to more than $40,000 over the loan term! Similarly, since more of your payment is going directly to the principal, you will build equity in your home faster.
Change the Loan Term
Another benefit of refinancing is the opportunity to change your loan’s term.
If you have a 30-year mortgage, you may want to consider decreasing to a 15-year term. Although this may increase your monthly payment, a larger percentage of it will go to the principal so you will build equity faster.
The opposite is also true – if you have built up some equity and want to restart the 30-year term, this will decrease your monthly payments.
Accessing Home Equity
Accessing home equity to cover expenses like the cost of a renovation is another reason to refinance your mortgage.
To do this, you would take out a new loan that is larger than your current loan. The excess cash can then be used to cover the cost of your remodel or to cover other debts where the interest rate may be much higher.
How Much Does it Cost to Refinance?
While there are many great reasons to refinance, it is important to consider the cost of obtaining a new mortgage. There are application fees, title insurance, search fees, lender attorney costs, and potentially more.
A typical refinance costs between 2% and 5% of the value of the loan, so you must make sure that these added costs are worth the benefits listed above.
At Morgix, our goal is to help you understand refinancing, and find the right solution for your unique financial needs. We would love to help you take advantage of the current low-interest-rate environment to refinance your mortgage today!