How To Decide If Now Is The Right Time To Refinance
Interest rates have been flirting with all time record lows for some time now, which makes Refinancing a hot topic. Deciding if refinancing is right for you in your current situation can be a daunting task for some, which is why we are here to help.
If you plan on living in your home for at least the next four to five years, then you must look into refinancing. Whether you are looking to lower your monthly payment or save interest by reducing the term, it is worth taking the time to look at your options.
There are many loan programs out there to help you refinance on your home, even if you are underwater or have a second mortgage. Remember, refinancing is not a failure but a savings!
1) Determine why you want to Refinance
The first step is one that often gets overlooked due to pressure from the media on low rates, refinancing advertisements, or your neighbor bragging about how successful their refinance went. You need to figure out what your goal is with refinance your mortgage so you don’t waste time and money.
As long as you plan on living in the same home for about four to five years, refinancing your mortgage is something that should be evaluated on a yearly basis along with your other finances. Determine what your plan is with this current mortgage.
Are you looking to pay it off faster, where refinancing to a lower rate and term could save you tens of thousands over the life of the loan?
Are you looking to free up cash flow by refinancing to a 30 year mortgage, which could lower your monthly payments by hundreds of dollars every month?
Are you looking to tap into your home’s equity with a cash out refinance to pay off other debt, tuition, etc.?
All of these are valid options, but you must know what your overall plan is in order to effectively evaluate your refinancing options.
2) Knowing what your Michigan Home is Worth
There are a lot of restrictions and regulations when it comes to refinancing your mortgage. The value of your home in Metro Detroit is a huge deciding factor. It’s no secret that in Southeast Michigan home values plummeted during the recession, with many folks finding themselves way underwater on their home (meaning they owe more than it is worth). According to estimates by Zillow, Metro Detroit homes went from a peak average value of $156,000 at the end of 2006 and dropped all the way down to $75k in late 2011. That is a hard blow!
While the value of your home may limit your refinancing options, it does not mean you are stuck in your current loan. Call your local mortgage broker to get assistance in best estimated your homes value, which will be key in determining if you qualify for a cash out refinance. If you are underwater on your home, see if you qualify for the HARP Refinance Program which could still allow you to lower your payments. This program in Michigan ranked #5 in terms of most HARP refinances in the country, so it is definitely worth looking into!
3) See if Today’s Mortgage Rates Can Justify The Savings
No matter if you want lower payments or to save money over the life of the loan, today’s mortgage rates will be the key to justifying your refinance. Most places will tell you a general rule of thumb that if you can lower your current rate by 1% then you should refinance. However, there is generally more to it than that and the only way to correctly evaluate your options is to crunch the numbers.
As a mortgage broker, we have access to multiple different lenders. This allows us to find the lowest rates in the market for your refinance. We not only will present you with numerous loan options that break down the costs and numbers available for each option, but we will use amortization schedules and payment calculators to help show you the potential savings.
What an amortization schedule does is it takes your current loan details as is and compares it to a possible new refinance. This allows you to see the monthly payments side by side for the life of each loan and calculate the total amount of savings. Find out what your “number” is today by trying out our simple to use Excel Amortization Schedule here!
Here is a list of articles and videos that can help you decide if refinancing is right for you: