Home > Mortgages > 5 Reasons to Refinance Now

Comments 1 Comment

5 Reasons to Refinance NowTaking advantage of today’s mortgage rates is certainly something to consider. Even if you took out a mortgage as recently as last year, rates — even while trending up — have remained favorable. When it comes to refinancing, consumers must consider two components: That the mortgage makes sense, and the benefits outweigh the costs.

Here are some sound financial reasons to refinance the mortgage on your home.

To Reduce/Remove Monthly Mortgage Insurance

Refinancing into a new loan with no monthly mortgage insurance could easily save a consumer upwards of $175 per month or more. In order to get rid of your mortgage insurance, you need 20% equity in your home. And as home prices rise, many homeowners are getting closer to that coveted position. For consumers who took out FHA loans from 2010 through 2011, refinancing into a conventional mortgage even with lender mortgage insurance is still a viable choice as the rate and insurance benefit is substantially lower than the mortgage insurance premiums imposed by the FHA. Beginning in April, FHA insurance premiums are slated to rise again, making conventional choices more appealing.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

Free Credit Check & MonitoringTo Move to a Fixed Rate

For consumers coming out of an adjustable-rate mortgage, moving into a fixed-rate loan will likely increase the payment as the rate could be upwards of .75% higher, on average. However, the prospect of what future rates will do compared to the net tangible benefit attainable by moving into a fixed rate could prove to be a smarter choice.

To Pay Off Your Home Faster

Taking on the burden of a 15-year fixed rate isn’t as financially difficult as it used to be, as managing the payment over time becomes easier with a lower interest rate generating a more flexible payment. By moving from a 30-year mortgage to a 15-year mortgage, a consumer can shave 15 years off the time it takes to pay off the house while at the same time dramatically reducing interest expense.

To Cash Out

Using a loan for paying off debt, doing home improvement, replenishing savings/assets, perhaps even in conjunction with a financial plan — this is a choice to be considered carefully and will be more closely scrutinized by the lender (for net tangible benefit).

[Related Article: The First Thing to Do Before Buying a Home]

To Reduce Your Payments

Reducing the mortgage payment requires careful consideration of determining the monthly savings generated by refinancing i.e. lower rate longer-term with initial investment required to complete the transaction. Perform a breakeven analysis by taking the monthly savings divided by the closing costs associated with financing. A more robust return on investment approach would be taking the annual savings generated by the refinance divided into the closing costs (initial investment). In most cases the return on investment will be greater when compared to the returns offered by a checking or savings account.

A Few Things to Remember

The old school mantra on refinancing was: unless the interest rate is a full one percentage point lower, then refinancing simply didn’t make sense. Now that school of thought is a thing of the past, as rates and the normalcy of mortgage insurance have come in to play in recent years. If the savings warrants it, remortgaging even for as little as .625 percentage points lower in rate could still be worth it, especially considering it might mean saving a few thousand dollars per year. Generally, many break even on their refinances today anywhere within 10-18 months.

[Featured Products: Research and Compare Mortgage Rates at Credit.com]

Image: iStockphoto

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • http://www.joetaxpayer.com JoeTaxpayer

    I’ve found there’s some confusion when one is refinancing due to the change in terms. Even if one were to try to refinance, say 3 years after getting their mortgage, the balance is a bit lower and, in effect, they are refinancing from 27 years (remaining) to a new 30 year loan. The best way to calculate savings and not just change in cash flow is to calculate a new payment using the time remaining on the old mortgage. 23 years left on your 30? Take the new rate, regardless of term, and calculate that payment. That’s the savings when you then calculating break-even time for closing costs, if any.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team