Depending on when you bought your house and the interest rate you obtained at the time, you may have never had a need to refinance your mortgage. While refinancing will cost you a little money, have your lender do the math. If you plan to stay in your home for a while, with an interest rate lower than what you have currently, you may recognize significant savings on your mortgage loan after you refinance. Even if interest rates aren’t as low as they have been, there are still two good reasons to refinance.
One reason you may want to consider refinancing is if your interest rate was determined when your credit wasn’t as strong as it is now. While the popular conversation to have is about how low interest rates are, not everyone qualifies for those rates. If your credit score has improved significantly since you purchased your home thanks to making regular payments on time, talk to a mortgage lender and find out what interest rate you would currently qualify for.
On a $200,000 mortgage with an interest rate of 6%, you would pay $231,677.03 in interest with a 30-year mortgage. Cut your interest rate to today’s rates of 4.625% and you would cut your interest on a 30-year loan to $167,867.50, a savings of $63,809.53. While most people don’t own the same home for 30 years, interest payments are larger at the beginning of your mortgage due to the loan amount being higher, so you would recognize your savings pretty quickly if you secured a better rate than what you have currently.
Another reason to consider refinancing is if you have significant equity in your home and want to use that equity for another reason. Mortgage loans offer tax benefits that other methods of borrowing money might not so if you are looking to free up a large sum of money, you might be able to refinance your mortgage and do just that. This money could be used to pay down other debts with higher interest rates, complete a home renovation, pay for education or any other reason. This will remove the equity you have in your home so it may not be ideal if you think you might sell your home soon and need that equity for a future down payment but depending on your financial circumstances, it may make sense.
Don’t try to make important financial decisions without the advice of a professional. These decisions can effect your taxes or future home plans so make sure you do your research before you refinance for one of these reasons. I am always available to answer any questions you have about the real estate market and am happy to connect you with a mortgage lender in the Bastrop area if you need a recommendation of someone that can help you understand the best option for your mortgage needs.
The Janis Penick Team
RE/MAX Bastrop Area
Serving Bastrop, Cedar Creek and Smithville
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