There are many reasons a person might want to refinance their home. Beyond getting a lower interest rate and lowering your costs to save you money, other factors to consider in a refinancing decision include current home equity value, market price for your home, cash needed for repairs or remodeling and whether the home you are refinancing is transitional or your forever home. If you love your house and your community, and you’re planning to stay for the long term, you will want to at least think about refinancing.
As part of your home refinance analysis, compare your current monthly payment to a loan under current market rates, along with potential closing costs on a new loan. Is your home a starter, or the home you plan to stay in for a long time, maybe a lifetime? When you have to pay closing costs you need to consider these factors since there are costs to refinancing. You may have to pay bank fees, attorney fees, appraisal fees, and title insurance fees. Contact a Chelsea State Bank loan officer to get assistance and guidance to determine and calculate these costs.
Mortgage Rates
Mortgage rates, though still historically low, are starting to rise. So, if you’re a homeowner with good credit and a solid income, now might be an opportune time to refinance. As a general rule, refinancing – that is, paying off your current mortgage and taking out a new loan at a lower or comparable interest rate – may be worthwhile if you can drop your rate by at least half a percent, or you want to refinance to take cash out for repairs or remodeling to your home.
People often get adjustable rate mortgages when they aren’t sure how long they will live in a house since the initial interest rate is generally lower than interest rates on fixed-rate mortgages. Switching to a fixed-rate loan provides more stability since the amount you pay every month won’t change over time with a fixed-rate mortgage. Also, if there’s a big rate hike on the horizon, you may want to lock in a current, low interest rate.
Time
Even if all the numbers look good, there’s another factor to consider. By refinancing, you’re extending the loan period to 30 years from now. If you’re in year two of the original loan and you’re 34 years old, that’s probably no big deal. But if you’re in year seven and you’re in your late 40s, you may not want to start over with a 30-year loan.
If you’re concerned about extending your loan too far into the future – or if by doing so you will wind up paying additional total interest over the life of the loan – consider these two options:
- Take a 15- or 20-year loan instead of a 30. This will generally earn you a still-lower interest rate, though the shortened loan period will probably result in a higher monthly payment. If you can afford the higher cost, this can be an extremely beneficial move because it means you’ll be done paying off your mortgage in just 15 years saving money in total interest over the course of the loan.
- If you can’t afford to do that, consider a new 30-year loan, but use some of your monthly savings to pay a bit extra each month and shorten the term of the new mortgage to match the years remaining on your old mortgage and you can shorten the new loan to 25 years. Or just keep paying the full amount you’re already accustomed to paying each month and shorten the new loan to just over 20 years, with the freedom to pay only the regular loan payment anytime finances get tight.
Considering a Refinance? Let Chelsea State Bank Help
Chelsea State Bank is the local bank with Big-Bank perks. We offer a Buyer’s Edge prequalification application – a fast, easy, online application, from your local bank – as well as multiple types of competitive mortgages and all the assistance you’ll need to pick the right loan for your goals.
Learn more about the advantages of working with your local community bank to determine best loan options. Talk to one of our mortgage loan experts at Chelsea State Bank. Contact our office by phone: (734) 475-4210 or online: https://www.chelseastate.bank/mortgages/
