With mortgage rates at historically low levels—and expected to remain that way for the foreseeable future—now is a great time to consider refinancing your home. Here are a few key reasons why this is a relatively easy, yet strategic move can have a powerful, positive impact on your finances, and your life.
Refinancing can help you save money to achieve your goals, whether it’s to save for a vacation, retirement, or your child’s college education. Some refinancing strategies can put money in your pocket now, which can help you save for the future, or free up resources allowing you to pursue what you want out of life today. We take a holistic approach to your overall financial portfolio and reviewing opportunities to reduce costs on loans is just a portion of what we monitor to provide you the proper advice for your situation.
Why Should I Think About Refinancing Now?
Historically Low Mortgage Rates
Average mortgage rates are low compared to almost any year since 1971, according to Freddie Mac, and the forecast is bright. The 30-year fixed-rate mortgage rate, with a projected annual average of 4% in 2019 is expected to decline to 3.8% in 2020. So, refinancing at a lower rate can lower your monthly payment immediately.
Home Values are Up, Boosting Your Equity
Great news—in 2019, home values in the U.S. went up 4.8% over the past year and will rise 2.8% within the next year, according to Zillow. You can tap into that equity (your home’s market value minus the balance remaining on your mortgage)—with a cash-out refinance. This could allow you to:
- Make improvements to your home and property, further boosting the value and potential profit when you someday sell your home
- Pay off other high-interest, short-term debt
Lending Conditions have Improved Since the Great Recession
Every dark cloud has a silver lining, and right now we are enjoying the aftermath of the global economic turndown between 2007 and 2009. The upside is that the real estate industry, the financial industry, and U.S. policymakers addressed the root causes of the turmoil, improving lending conditions. This makes it easier for homeowners to have better access to refinancing, putting more money in your pocket to reinvest in the economy.
Switching from a 30-Year to a 15-Year Loan Could Help Achieve Your Goals
With a 15-year mortgage, you’ll pay more per month, but less interest, and you’ll save money in the long run. So, it’s a great plan if you can afford the higher monthly cost.
Let’s say you have a loan amount of $100,000 and a 30-year mortgage with an interest rate of 5%. If you refinance to a 15-year mortgage, even at the same rate of 5%, you would save $32,768 in interest. The total interest paid would drop from $60,624 to $27,856.
Your monthly payment would increase from $986 to $1,117, but you would pay off your mortgage in half the time.
Consider your long-term financial goals, though. For instance, if saving for retirement or your child’s education is a priority, a better approach might be to refinance your mortgage at a lower interest rate instead.
A Lower Monthly Payment May Free Up Cash
Finding a lower mortgage rate translates to more cash in your pocket every month. What you choose to do with it is up to you, whether it’s paying off your home sooner, improving it, saving for a wedding or an adventurous getaway.
You can find out instantly how much you would save per month and in interest over the life of your loan with our refinancing calculator.
For example, say you have a 30-year loan with a 6.5% interest rate which you’ve been paying off for three years and has a loan balance of $100,000. Refinancing at even a 5% interest rate would save you $114 per month and save $28,770 in interest.
Your monthly payment would drop from $986 to $872. The total interest paid over the course of the loan would be nearly cut in half—$31,854 instead of $60,624.
Without a doubt, given the current economic environment, it makes sense to look into refinancing. Taking optimal advantage of how to pay for a primary asset—your home—could be an easy way to meet future financial goals while also giving you the freedom to pursue what you want out of life today.