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When Does it Make Sense to Refinance My Home?

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filling out a mortgage refinance application


Refinancing your home can save you money, propelling you further toward your financial goals. And it doesn’t need to be a painful process. In essence, refinancing your mortgage means you’re taking out a new loan to pay off your original home loan. There are a number of different reasons people change up their loan, from securing better interest rates to establishing lower monthly payments to free up cash for a major expense. The best timing for refinancing will vary depending on your unique situation. Here are a few situations where it may make sense to refinance your home.


Lower Your Current Interest Rates

When interest rates drop, homeowners may have a bit of FOMO when they’re locked in at a higher rate. Fortunately, refinancing can allow you to take advantage of lower interest rates when they come along. The old rule of thumb is that it’s best to refinance when it would save you 1% or more. But that can vary depending on your circumstances, sometimes making a refinance worth it even at a lower percentage. 


homeowner calculating a mortgage payment

You Can Ditch Your Mortgage Insurance

When your equity has increased to the point where you can give mortgage insurance the boot, refinancing can be a solid option. These days, it’s common to have a down payment of less than 20 percent when you purchase your home. With less than 20 percent down, you’re required to pay mortgage insurance on your loan until you’ve built up 20 percent equity. 

Once you reach that point, or if your house has increased in value to that threshold over the time you’ve had the loan, you may be able to notify your lender and cancel the insurance. If that’s not an option, you can refinance to a new loan that doesn’t require mortgage insurance. 


You Want a Lower Monthly Payment 

If you need to spend a little less each month, you may want to look at a longer loan term as a way of lowering your monthly payments. This can be a great option if you lock in a lower rate, or your situation changes so paying less each month will help ease financial burden. 


You Want to Pay Off Your Loan Quicker

On the other hand, you may want to get your home paid off quickly, making a refinance to a shorter term more appealing. And when interest rates drop, you can often significantly shorten your loan term with little to no change in your monthly payment. Of course, that depends on your starting percentage and what you can reduce your interest rate to, so be sure to work with your lender and do the math before you dive in. 


a jar of 100-dollar bills

You Need a Little Extra Cash 

When you need a bit of extra money in your pocket and you’ve built up enough equity in your home, you can refinance to cash out the portion of your loan you’ve already paid. That just means you take on a new loan for the value of your home, and pocket the amount of equity you’ve accumulated since purchasing (minus fees and related expenses). 


There’s an Advantage to Changing Loans

Sometimes homeowners will use refinancing as an opportunity to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage so they can lock in a lower, consistent rate. When the loan type you purchased with isn’t serving your needs anymore, refinancing could help you change things up. 


Local lenders at RMCU can help you out when it comes to your refinance, going over available options and helping you weigh the pros and cons of each. Get in touch to find out whether refinancing your mortgage can help you reach your financial goals faster. 

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