So, you’ve had a home for awhile, but you feel like your budget is just too tight. You scrimp and save, but it’s never enough. If the biggest expense you have is your mortgage, maybe it’s time to refinance your mortgage.
Refinance to a lower rate
Rates are very low. Right now, for a 30-year mortgage, the fixed rate can be as low as the high 3’s to low 4’s. Fifteen-year loans may even be in the high 2’s. Refinancing may be a great way to lower your overall mortgage payments by dropping your interest rate. This could help to save you thousands over the life of your loan. If your interest rate is over 4.5% now is a great time to review refinance options.
Drop your PMI
The only type of mortgage where Private Mortgage Insurance (PMI) drops off when you have 20% equity is the Conventional loan. Other types of loans, like the FHA, require PMI for the life of the loan. PMI usually costs 0.5 or 1% of the entire loan. It protects the bank from defaults. For you, it’s an extra cost — one that, once you’ve paid off 20% of the original loan value, you can refinance to remove. While it may not seem like a lot of money, 1% of a loan over the life of a 30-year mortgage can really add up over time.
Extend your mortgage term
One reason folks often have trouble paying their monthly mortgage is that they think that a 15-year term is better than the 30-year. While it’s true that a 30-year mortgage takes longer to pay off, the monthly payments are lower. If your goal is a lower monthly budget, switching from a 15 to a 30-year will certainly do the trick. The only downside is the term of the loan is longer if you pay the minimum payments.
Also, if you already have a 30-year mortgage and refinance to a new one, you could still reduce your monthly payments.
Refinance from an FHA loan to a Conventional loan
You may have started with bad or low credit when you initially bought your house and had an FHA loan as the result. Or maybe you didn’t have enough money for a larger down payment. As your credit improves, you could have an opportunity to refinance your loan to a conventional mortgage. There are two advantages when refinancing an FHA to a Conventional loan: First, you could get rid of the Private Mortgage Insurance payments if you’ve paid 20% of the mortgage. Secondly, the interest rates for a Conventional loan may be lower than they are for FHA loans.
If you are thinking about refinancing your mortgage, contact one of our professional loan officers at 800-555-2098 to schedule an appointment. We can sit down and look at your financial situation and help you figure out the best way to lower your monthly mortgage payments.