When To Refinance Your Mortgage

Presented By Artisans’ Bank

As with most loans, mortgages come in various shapes and sizes. However, unlike most other types of loans, a mortgage can be refinanced to lower your interest rate or get cash equity out of your home. In simple terms, refinancing a mortgage happens when a homeowner decides to switch out their original mortgage loan with a new one. Refinancing a mortgage means you’ll pay off the existing mortgage(s) and take on a new mortgage with different — and, ideally — more favorable terms. 

Here are 5 times where it makes sense to work with a financial expert to refinance your mortgage.

1. You have an opportunity to lower your interest rate.

Your mortgage payment is determined by several things, including the loan’s interest rate. One major reason people refinance their mortgage is because there’s an opportunity to obtain a lower interest rate. Lower interest rates lead to smaller monthly mortgage payments because the loan’s principal won’t be as much.

Experts suggest that when homeowners can get an interest rate that’s at least 1% less than their current rate, refinancing makes financial sense.

2. You have an opportunity to obtain a fixed interest rate.

Sometimes, people who have mortgages with adjustable interest rates(ARM) — meaning they can change over time, sometimes to a borrower’s disadvantage — may have an opportunity to refinance their mortgage loan with a fixed interest rate. 

This can help add stability to your finances, since your monthly payments will be predictable over the life of your loan. Switching to a fixed interest rate mortgage also prevents the scenario of rising interest rates causing a sharp mortgage payment increase. 

3. You need money for major expenses. 

Refinancing your mortgage can provide a solution to major (or sudden) expenses. In this  type of refinancing known as a cash-out refinance homeowners will need to have reached a certain amount of home equity to do a cash-out refinance, and typically, a lender will only lend 80% of your home’s value. The downside with a cash out refinance is that you’ll have a bigger mortgage loan to pay off. However, for anyone in need of an instant infusion of funds, it’s an option to consider. 

4. Yoau want a shorter mortgage loan term.

Mortgage loan lengths can vary, although a 30-year mortgage is fairly typical. But for those who’d like to pay off their house sooner — or simply don’t want to be saddled with a hefty monthly expense for decades — refinancing to a 15 or 20-year mortgage can allow you to take out a shorter duration mortgage loan.

5. You want to make major renovations to your home. 

Many homeowners who have built up equity in their home may use a home equity line of credit (HELOC). As an example, updating a home by adding a new bathroom or bedroom usually adds value to the home. A HELOC lets the homeowner tap into the equity of the house. It’s a smart financial move, specifically with HELOCs, which can have variable interest rates. 

Conclusion

Before you decide to refinance, you should consider speaking with a financial and/or tax advisor who can outline the new mortgage interest deduction laws that were implemented by the IRS starting in 2018. 

The team at Artisans’ Bank can help you find the best loan for your needs. To find out more, contact Artisans’ Bank at 302-884-6868. With twelve offices to serve all of Delaware, they can offer you a wide selection of home lending products to meet your financing needs.