When is the right time to do anything? It’s the existential question we wrestle with when it comes to almost any major life decision—from buying a home to starting family. The answer is, of course, when the time is right for you. If you’re asking yourself if it’s time to refi, perhaps it is.
We’ve enjoyed nearly two decades of relatively low mortgage interest rates. Rates for a 30-year fixed-rate mortgage have largely remained in the single digits, with the median current interest rate for homeowners at 4.5 percent, according to data from the U.S. Census Bureau.
If you’re looking to lower your monthly mortgage payment, a good ballpark to aim for is a one- to two-percent interest rate savings, depending on the balance you are carrying, for a mortgage refinance to make financial sense. But saving money is just one of many reasons homeowners choose to refinance their mortgages.
What’s your goal?
Some people refinance to secure a lower rate and save money, but others do it to shorten the term of their mortgage, to consolidate debt, to pay for home improvements, to replace an adjustable-rate mortgage with a fixed-rate mortgage, or to eliminate private mortgage insurance.
These are all valid reasons for refinancing. Knowing your personal reason will help your lender determine the best type of loan for your needs: a fixed-rate loan, a cash-out refinance or something else.
What’s your interest rate?
Just because you’ve read that national average mortgage rates are at a record-low, doesn’t mean your circumstances allow you to qualify for that low rate. To determine the interest rate you will be charged, you need to consider the following questions:
- How is the property you want to refinance used? Is it your primary home, a second home or an investment property?
- What type of property is it? A single-family home? A multi-unit building? A townhome or condominium?
- Is there a second mortgage on the property?
- What is your estimated credit rating?
Talk to a professional lender to learn more about interest rates or use our online questionnaire to get a personalized quote.
What’s your break-even point?
Once you’ve determined the type of loan you want to refinance to and the interest rate you qualify for, your lender can tell you exactly what it’s going to cost.
If lowering your monthly payment is your primary reason for refinancing, go through the exercise of calculating the break-even point —the time it will take for the mortgage refinance to pay for itself.
Typical fees paid during a refinance include the application fee, loan origination fee, appraisal fee, inspection fee, closing fee, title search and insurance, among others. Total up all the costs of the refinance and then divide that by how much money you are saving per month because of the lower interest rate.
For example, if you have $2,000 in closing costs, but refinancing will save you $100 a month on your payment, it will take you 20 months to break even. If you’re planning to move in the next year or so, refinancing probably isn’t worth it.
Deciding to refinance a mortgage is a major financial decision, and the timing must be right for you and your situation. First Financial Bank offers an extensive choice of mortgage solutions. Let us help find the right solution for you.