The number of homeowners that have refinanced their home mortgages has skyrocketed since the beginning of the pandemic. The downward trend of interest rates has pushed a conventional, fixed, 30 year mortgage below 3% in 2020. Rates have continued to stay low into the start of 2021. Should you refinance your home? Here are a few things to consider.
First: Evaluate your Current Mortgage
Take a look at your current mortgage. What type is it? Conventional, adjustable rate, or FHA? How many years do you have left on your current mortgage? The less time you have until it’s paid off, the less enticing it may be to refinance. What is your current interest rate? Some experts like to use a 0.75% rule of thumb, meaning if you can reduce your current rate by 0.75%, it may be beneficial to discuss refinancing. Keep in mind this is just a rule of thumb, everyone refinances for different reasons.
Reasons to Refinance
If you can secure a lower rate and plan to stay in the home for a long period of time, refinancing can lower your monthly payment. This means your cash flow will increase giving you the ability to save for retirement or pay off other high interest rate debt. Depending on how much you originally put down on the house, refinancing could eliminate your private mortgage insurance if you have enough equity. This could also save you money. Some people refinance to a shorter-term loan, which typically increases the payments, but will pay the loan off sooner. If you have an adjustable-rate mortgage that is about to reset, refinancing and locking in a low rate could be beneficial.
If you have questions on whether or not to refinance, start with your financial advisor. At Sharkey, Howes, and Javer all of our advisors are CERTIFIED FINANCIAL PLANNER™ professionals and can help guide you through the process.