Still on the fence about refinancing your mortgage? There are a lot of reasons to cut costs if you can. Unemployment is still high and you just can't be sure you won't eventually be laid off. Home prices have continued to fall and no one seems to know for sure when they will begin to rebound. Here are four reasons it might be smart to refinance now.
- You're paying substantially more than current mortgage rates. "If it ain't broke, why fix it?" you may be thinking. But even if you are managing your monthly mortgage loan payments and have money to spare each month, refinancing could allow you to save a significant amount of interest over the life of your home loan. That could put more money in your pocket today and in the future. You have a good chance of qualifying for the best refinance rates out there if you have been making mortgage payments on time, and have excellent credit and a decent amount of home equity.
- You believe that your household income may decline. Are you or your spouse anticipating a job layoff or reduction in pay? Although the jobs picture may be showing signs of improvement, there is no guarantee that some companies won't continue to down size. Or maybe one of you is planning a leave of absence from work. Does it take two incomes to pay your mortgage at its current interest rate? If so, run the numbers to determine if refinancing would lower the monthly payments enough so that only one income would cover them.
- You could get rid of mortgage insurance (MI). MI is often referred to as private mortgage insurance (PMI), and is basically protection for your mortgage lender in case you default. MI is generally required on mortgages when the borrower makes a down payment of less than 20 percent. Once you pay your balance down to 80 percent, the mortgage lender is supposed to drop MI. But maybe you already have at least 20 percent home equity because your home's value increased. Refinancing would allow you to get rid of MI.
- You could get rid of an adjustable-rate mortgage (ARM). Maybe you thought you would only live in your current home for a few years before selling it and got an ARM with a low interest rate. But if you're like many U.S. homeowners, the challenging housing market may have forced you to remain where you are longer than you want. Eventually, your ARM is going to reset, and you may be facing significantly higher mortgage payments when it does. Refinancing into a fixed-rate mortgage loan could allow you to take advantage of low refinance rates and lower your payments.
Compare refinance rates
Take time to investigate whether refinancing now makes sense. You can compare refinance rates from several mortgage lenders to find the best deal. If necessary, talk with an impartial housing counselor who isn't trying to sell you any financial products and will look out for your best interests.