Five Good Reasons to Refinance
Interest rates have been hitting record lows over the past few months, so you might be wondering if you could benefit by refinancing the mortgage on your home in Reston. Even though refinancing under current conditions seems like a no-brainer, there are some things to consider before you get that refi ball rolling!
A refinance requires going through the entire mortgage approval process again. This includes paying fees that will range from 3-6% of the loan amount. These fees include things like a home appraisal, title search, home inspection, and points. It’s important to weigh those costs carefully against what you stand to gain. To recoup the closing costs, on the new loan, you’ll need to hold onto it for a while, so if you aren’t sure you’ll be staying in your home, it might not be worth spending the money to refinance now.
If you are staying put for a while, here are some great reasons to refi:
1. Lower interest rates: Who doesn’t want a lower monthly payment? If current rates will reduce your interest rate by at least 2%, a refinance could be a beneficial option for you.
2. You currently have an adjustable rate mortgage: Although rates have recently dipped down to new lows, at some point they are bound to rise again. If you have an adjustable rate mortgage, this could be a great time to lock into a consistent low rate.
3. The length of your mortgage is over 15 years: A refinance to shorten the terms of your loan is an excellent way to take advantage of current rates. While your monthly payments might be the same or slightly higher, you’ll pay off your loan faster and reduce the amount of interest you will pay over the life of the loan, saving you big bucks!
4. Eliminate private mortgage insurance: Private mortgage insurance, a required expense for some homebuyers, can add hundreds to your mortgage. A refinance with at least 20% equity will enable you to ditch PMI.
5. Cash-out for home improvements: A cash-out refi can help to improve cash flow, enabling you to pay off debt on high interest credit cards or loans. If you use the cash for home improvements, you can still deduct the mortgage interest you pay on those funds.
If you decide to refinance, make sure you meet some basic criteria, including having kept and paid for your original mortgage for at least 12 months, 10-20% equity in your home, a regular income, and a good credit score.
Finally be sure to shop around for a mortgage lender to get the best deal. While there are advantages to sticking with your original lender, such as being able to negotiate better terms and get a break on certain closing costs, it’s good to check out the competition. There are variations among lenders in closing costs and percentage points, so checking out some options before settling could potentially save you thousands!