Knowing when it’s time to refinance your mortgage can singlehandedly sink or elevate your financial situation, and there’s an art in knowing when it’s time to make moves. The last thing anyone wants is to miss an opportunity on something that will seriously affect their financial health in the decades to come.
Right now mortgage interest rates are near historically low levels with 30-year rates at 2.97 percent and 15-year at 2.37 percent. As enticing as that might look at a glance, there’s more to a successful financial refinancing than any one factor.
To successfully retool your mortgage, you need to be able to read the signs and indicators verified by those with first-hand success in the field. One such source of information is Mike "Mortgage Mike" Roberts, co-founder and president of City Creek Mortgage, who has provided a steady hand for those looking to refinance their home for over two decades.
1. Your Credit Score Has Improved
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A credit score represents the confidence or risk that lenders perceive in a user. To those who pay off bills and major purchases in a timely fashion, larger lines of credit with lower interest rate are the reward. Doing repeatedly over the years gives you a valuable tool to be used when refinancing your mortgage.
“As we frequently tell our clients here at City Creek Mortgage, an easy indicator that it might be time to change the terms of your mortgage is an improved credit score,” explains Roberts.
“Refinancing with a credit score that is higher than when you first began your mortgage usually results in a lower overall interest payment rate. This means more money in your pocket, and it’s an effective way to reward yourself for cleaning up your credit score.
It can take time to improve a lackluster credit score, but once you have put in the work to bring it up to healthy levels, it’s an ideal time to refinance.
Interest Rates Have Dropped
Interest rates fluctuate over the years, and right now sit at levels which make refinancing particularly opportune. “If you started your mortgage when rates were higher than today, then you have every reason to look at refinancing,” says Roberts.
“In the past couple of years rates have hit or stayed close to historic lows, and we help clients adjust their mortgage to make the most of this shift in the market. There’s no reason to stick with, and ultimately pay more, an outdated interest rate when refinancing is easily available.”
A good rule of thumb here when looking at mortgage interest is if you can reduce your overall rate by one percent, then it’s worth the time to refinance.
You Need to Lower Your Monthly Payment
If your monthly expenses have climbed to unsustainable levels, then refinancing your mortgage might be the best move possible to give yourself some breathing room. “One aspect of refinancing many are interested in is the possibility of lowering monthly payments,” says Roberts.
“Especially if you have already paid off a few years of your mortgage. By refinancing you give yourself a longer timeline to pay off the total amount, and ideally with a lower interest rate as well, the end effect is a substantially lower monthly payment. This is something we specialize in helping our clients with attaining, and by digging into the details, we can help you find a new monthly payment plan that works for you.”
By extending the timeline of paying off your mortgage, it’s true you will be making payments longer, but also less each month. With a professionally negotiated interest rate to reduce the extra costs, such a move gives extra time and financial freedom to those on a budget.
You’re In a Cash Crunch
Sometimes in life you need a large sum of money quickly, whether it’s paying off debt, essential medical services, or necessary home improvements. If this is the case, you can do what’s called a cash-out refinance, which can quickly give you funds to be used at your complete discretion.
“Life can throw you all kinds of curveballs, and sometimes you need to gather some funds together quickly for important larger payments,” explains Roberts.
“The key is to do so without falling prey to higher interests rates from credit cards or loan sharks. We heavily advise those going through a cash crunch to consider a cash-out refinance.” The basic premise with a cash-out refinance is that you are able to borrow money based upon how much you still owe on the house.
A quick example is that you bought a home originally for $300,000, have paid off $100,00 thus far, and need to pay off $30,000 in credit card debt. With a cash-out refinance, your new mortgage would be for $230,000 (original house cost - payments to date + required cash funds).
You would then receive the $30,000 from the lender in cash, pay off the credit card debt, and then continue making payments on your new mortgage total. “Cash-out refinancing is an easy solution to those with pressing financial needs,” says Roberts. “And one that keeps you afloat financially while also staying on track with your mortgage payments.
If any of these signs match your current situation, then it’s worth taking a look at refinancing your mortgage. By doing so with an experienced industry leader like Roberts, you can save yourself tens of thousands of dollars and put yourself in a much healthier long-term financial situation.