Refinance Your Mortgage?

With interest rates still running at historic lows, does it make sense to refinance your mortgage?  There are many reasons why you might consider refinancing:

• To obtain a lower interest rate
• To shorten the term of their mortgage
• To convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, or vice versa
• To tap into home equity to raise funds to deal with a financial emergency, finance a large purchase, consolidate debt, or create funds to do some home remodeling

Since refinancing can cost between 2% and 5% of the loan’s principal (an appraisal, title search, and application fees, etc.) it’s important for you to determine whether refinancing makes sense.  There are numerous refinancing calculators on-line to assist you in doing the math to help you make an educated decision.

From Investopedia.com: The rule of thumb is that refinancing is a good idea if you can reduce your interest rate by at least 2%.  However, many lenders say 1% savings is enough of an incentive to refinance.

When looking at different options, one thing to consider is that going from a 30-year mortgage to a 15-year mortgage doesn’t necessarily mean your new payment will be higher.  In the past, doing that type of a refinance often ended up with a much higher monthly payment.  If your current 30-year mortgage interest is high enough, you might be able to reduce the time it takes to pay off the mortgage and still end up paying a similar monthly amount by refinancing to a 15-year mortgage.

Another popular option is refinancing into an Adjustable Rate Mortgage (ARM).  One thing to consider here is with interest rates being so low, any adjustments are likely to be in an upward direction, meaning you pay more.

Bottom line, if you are going to refinance your mortgage, use the calculators to see what the actual numbers will be.  There are pros and cons with refinancing, so explore them all and come to an educated decision.

This blog is created and authored by Chuck Henrich (Content Creator) and is published and provided for informational and entertainment purposes only. The information in the Blog constitutes the Content Creators own opinions and it should not be regarded as a description of services provided by Southwest Michigan Financial, LLC. The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.  It is only intended to provide education about the financial industry.  The views reflected in the commentary are subject to change at any time without notice.

Nothing on this Blog constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person.  The Content Creator and Southwest Michigan Financial, LLC assumes no responsibility or liability for any consequences resulting directly or indirectly for any action or inaction you take based on or made in reliance of the information, services or materials provided within this blog.