Should I Refinance My Mortgage?

Thinking of refinancing? As with any type of mortgage decision, you need to go through all your options and crunch the numbers to determine if refinancing is a good option for you. New England Home Mortgage can you through every step of this process.

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Reasons to Refinance

Here are some of the top reasons people refinance. If any of these match your situation, you may want to consider changing your mortgage.

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• Lower interest = lower monthly payment. Most people who refinance do so for a lower interest rate. This can end up saving you hundreds of dollars a month, especially if you bought your home during a time when interest rates were high, or if you had less than desirable credit when you first got your loan. Over the life of the loan, this could save you thousands of dollars.
• Change your rate or term length. If your original loan was an adjustable rate mortgage, you can refinance to a fixed rate after the initial low-interest term runs out. This is a good option to secure stable and predictable monthly payments. Refinancing for a shorter term length is another option. You can switch from a 30-year mortgage to a 15-year mortgage for a lower interest rate and pay off your mortgage faster.
• Cash-out refinance. With a cash-out refinance, the new loan is for a larger amount than the original loan. The difference goes to the borrower in cash. The cash can typically be used for anything, from home renovations to paying off credit cards. Keep in mind you will have to pay interest on the cash, as well as the refinanced mortgage.
  

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What to Consider before Refinancing

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• Closing costs. Refinancing costs money. As you close on the new mortgage, you will have closing costs that need to paid upfront. Closing costs to refinance are typically between 2% to 5% of your loan - between $4,000 and $10,000 for a $200,000 loan. So, you will want to consider how many months it will take you to break even before you start saving money.
• Will it cancel PMI? If you have gained enough equity in your home, refinancing could allow you to cancel private mortgage insurance. Between this and (hopefully) a lower interest rate, you could save a substantial amount each month. In order to cancel PMI, the loan balanced needs to be 80% or less of the appraised value of your home.
• Tax savings. Refinancing to a lower interest rate means you will have less mortgage interest to deduct on your tax refund. You will want to keep this in mind as you determine if the lower interest rate will increase your overall savings.
  

To determine if refinancing is a good option, NEHM will go through options from different lenders, and take in all of the above factors into account.