Refinancing can be a vital step in paying off your mortgage early and becoming debt-free. But how do you know when it's the right time to refinance? If you are not quite ready to talk to a Home Loan Specialist, use our Refinance Calculator to see how much money you can save over the life of the loan.
Next, compare the updated monthly payment on your newly refinanced mortgage. To determine this number, take your current home loan balance along with your new interest rate, and new loan term to calculate your new loan’s monthly payment. You'll then see a comparison of the new monthly payment to your current payment. Depending on your goal, your new payment may be lower or higher than your original payment.
Why people choose to refinance:
A lower monthly payment and increase in monthly cash flow can be a huge help if your income or life circumstances have changed. If you are looking to refinance into a lower monthly payment, consider the amount you’ll save with your new monthly payment each and how long it will take for your new savings to offset the total cost of the refinance.
If you divide the total cost of your refinance with the amount you’ll save on your new monthly payment, you’ll know how many payments you will need to make on your new loan before you recoup the costs. This is also known as the break-even period. If you plan to move or sell your home before this break-even period, it does not make sense to refinance, as it will cost you more money than you would save.
By refinancing into a lower interest rate or a shorter loan term, you can reduce the amount of interest you pay over the life of the loan. Similar to making extra payments on your mortgage, a lower interest rate will reduce the percentage of your loan you’ll pay each month in interest, and a shorter term will reduce the number of payments you pay interest on.
While your monthly payment may increase in this scenario, the savings come from the accumulated reduction of interest over the life of the loan.
Refinancing is a great tool for homeowners who need to adjust their home loan to meet their needs, but sometimes refinancing just doesn’t make financial sense. In those cases, home owners still have options to reduce interest and save.
Because the interest rate on your home loan is directly tied to how much you pay on your overall mortgage, lower rates usually mean lower monthly payments.
Check out this example of monthly payments (principal and interest) on a 15-year fixed-rate loan of $250,000 at 5.5% and 4.0%.
With a 1.5% difference in interest rate, there is a $34,827 difference in interest paid! Imagine what you could do with that in your pocket!
* The scenarios listed above have an APR of 5.5% and 4% respectivly. Additional fees are not included in the examples above.
With so much of your hard-earned money on the line, it’s best to seek advice from a trusted home loan expert and have the confidence that you are in qualified hands.