With today's interest rates still lingering above all-time lows, the thought of refinancing your mortgage may have crossed your mind. Scoring a lower monthly interest payment is surely beneficial, right? And if you complete the right type of refinance and get a better deal, you should save money over the long haul.
Refinancing Your Mortgage: Potential Benefits to Consider
Before you jump right in, it's important to consider what refinancing your home loan really means. By and large, refinancing your home loan means trading one loan for another. Ideally, your new loan will have terms that are beneficial for your finances in some way, shape or form.
Here are a few ways refinancing your home loan might be a win for your finances:
- Secure a lower interest rate. Most people refinance their mortgage in order to get a lower interest rate than they have now. By securing a lower rate, you'll usually save money on interest in the long run.
- Get a lower monthly payment. With a lower interest rate, it's easier to get a new loan with a lower monthly payment. If you need more wiggle room in your budget, having a lower monthly payment might be ideal. Just remember, recasting your loan can start your repayment period over, meaning you'll have a mortgage longer.
- Cut the length of your repayment timeline and get out of debt faster. In some cases, lower interest rates make it possible for people to refinance their loan into a mortgage with a shorter timeline. Most commonly, people trade in a 30-year mortgage for a 15-year loan with this strategy. As a result, they are able to pay off mortgage debt much faster.
- Refinance a variable loan into a new product with a fixed interest rate. If your current loan comes with a variable interest rate, refinancing into a locked rate at today's low rates might be a smart idea. You may not save money at first, but you'll have a reliable mortgage payment if interest rates were to surge in the future.
Refinancing Your Home Loan: What to Watch Out For
Before you refinance your home loan, it's crucial to understand the importance of this decision. While a loan with a lower interest rate and/or more affordable payment might help your finances, misunderstanding your loan or its terms can leave you worse off. As always, the devil is in the details when it comes to refinancing your home loan or taking advantage of any other financial products.
The biggest factor to consider throughout the process is the amount of fees you'll pay to refinance your mortgage into a new loan. Make sure to get a full list of fees for your refinance from your lender before you move forward. Look them over carefully to make sure they make sense for your loan and your goals. The savings you'll get in the form of interest may make the move well worth it, but you should also run the numbers with our refinance calculator to make sure.
Also make sure you read the fine print and understand your new loan terms, including your new payment, new due date, and new payoff date. If you have any questions, make sure to speak with your loan professional and put all of your concerns on the table. Since your home loan is likely the biggest amount of money you will ever borrow, asking questions is crucial if you want to understand your new loan – and your options – inside and out.
Refinancing your mortgage can make a lot of sense if you have a variable interest rate or a rate that is considerably higher than what is offered today. To find out whether refinancing makes sense, check in with LendingTree or your loan professional to see what options might be available to you.
The right loan can save you money, cut your repayment timeline in half, or maybe both. But you'll never know unless you take steps to do some research on your own.