If you’re a current homeowner who feels like you’re spending too much on your monthly mortgage payment, it may be time to look into refinancing your loan. Specifically, refinancing a mortgage allows you to obtain a new loan to replace your existing mortgage with the ultimate goal of saving you money on your monthly payments and on interest in the long-term.
Wondering just how much you can save by refinancing and whether refinancing is right for you at this point in time? There are some tips to help you become better informed on the refinancing process and your potential for savings.
How Refinancing Can Save You Money
The main way in which refinancing your mortgage can save you money is by allowing you to obtain a new mortgage with a lower interest rate than your current mortgage. Even a small percentage decrease in your interest rate can lead to savings of hundreds of dollars per year and thousands of dollars (or more) over the total repayment term of your loan. And with current mortgage interest rates being near historic lows, now could be a great time to secure a lower interest loan and start saving money!
How Much Money Could You Save?
The total savings you’ll enjoy by refinancing can vary greatly depending on your current interest rate and what you can qualify for with your new mortgage. For example, if your current mortgage is for $200,000 at a 5% interest rate and you’re able to refinance at a 3.75% interest rate, this can easily cut nearly $150 off your monthly payment, leading to an annual savings of $1,800! And over the total repayment term of your loan, that could equate to tens of thousands of dollars in savings–all because you decided to refinance at the right time when rates were low.
Determining Whether Refinancing is Right for You
There are many considerations that you’ll need to keep in mind when determining whether or not refinancing is the right decision for you. If you’re serious about refinancing, you might consider getting pre-qualified for a new mortgage, as this will give you an idea of the interest rate you can expect to secure. From there, do your calculations and determine exactly how much you’ll be saving on your monthly payment with this new mortgage.
Of course, you’ll also need to factor in closing costs, loan costs, and other relevant fees that need to be paid up-front when closing on your new mortgage. These can easily total a couple of thousand dollars or more. Once you’ve determined your monthly savings, you can also calculate how many months of paying on your new mortgage it will take to recoup the money you spent on these costs. Sometimes, it can take a year or more.
Your credit should also be a determining factor when deciding whether or not now is the right time to refinance. Did you have a hard time getting approved for a low-interest rate when you first applied for your home loan due to bad credit? If so, and if you have since improved your credit, you can feel confident that you’ll have a much easier time getting approved for favorable loan terms and a lower interest rate. If your credit has worsened or is more-or-less the same, then it might be worth it to spend a couple more years working on your credit score before refinancing.
Overall, refinancing a mortgage can be an excellent way to start saving money on your monthly house payment and spend less on interest over time.
EPM can help you get started on the path to refinancing, contact us or pre-qualify online today.