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When Should I Refinance My Home?

Current low interest rates can create a sort of refinancing frenzy. But is refinancing always right for everybody? 

When it comes to refinancing, you’re going to want to talk to a mortgage professional because every homeowner’s situation is unique. There are a lot of factors to consider because refinancing introduces new elements into your financial situation. A good mortgage professional will take all of this into consideration and do a side-by-side comparison to determine whether refinancing is in your best interest. 

That being said, there are a couple of general questions you want to ask yourself if you’re considering refinancing:  

  • Can I lower my interest rate by at least ½ percent? Since the interest paid on a mortgage is one of a homeowner's biggest expenses, it makes sense to look for ways to reduce it. If you can make even a small drop in your interest rate it can result in a difference to your monthly payment depending on the size of your loan and how long you expect to stay in your house.

  • Can I drop mortgage insurance? Homeowners need to have at least 20% equity in their home to qualify for a new loan without paying private mortgage insurance (PMI). If you have to add PMI to the cost of a new loan when you refinance, it could cancel out the benefit or even end up costing you more on your monthly payment.

  • Has my credit score changed since I bought my home? Your credit score plays a big role in securing a good mortgage rate. Mortgage rates operate on a sliding scale, with lowest rates going to applicants with the highest credit scores.  Applying for a refinance with a higher credit score increases your chance of getting a good rate.  

Another thing you want to keep in mind is that when you choose to refinance, you also refinance the terms of your loan.  So you’d want to look at your loan’s amortization scale, because you’re starting over your payments. And at the beginning of your loan your payments are more interest heavy than principal heavy. This is something you’d definitely want to keep in mind.   

A good refinance should benefit homeowners by lowering their monthly housing payments and/or shortening the term of their mortgage. But, as with any major financial transaction, there are risks involved that can trip up the unwary buyer and result in a bad deal. This is why it’s so important to be informed about the process and work with a trusted professional who will help you make the right move. 

If you have further questions or would like recommendations from BHURD trusted mortgage professionals, contact one of the BHURDinUtah team members. We love connecting our clients with professionals we know and trust.

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