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Is now the time for you to refinance?

Posted February 5, 2021  |   Topics: Home Financing & Renovation, Wallet Wisdom, Mortgage

Find out by asking yourself these questions first.

Refinancing your mortgage can be a great way to save money over the long term and realize your finacial goals faster. Mortgage rates recently reached record lows, with many homeowners considering refinancing their current mortgage. Homeowners might believe they already have a great rate or that refinancing at a lower rate does not make that much of a difference. Taking the time to determine how refinancing might benefit you could result in paying off your mortgage sooner or saving hundreds each month on your mortgage payment. Refinancing may shave years off your mortgage and save you thousands of dollars over the life of your loan.

You may be wondering how to determine whether or not now is the time for you to refinance. We’ve put together a list of questions and information to help guide you.

How does a refinance work?

When you refinance your mortgage, your current mortgage is paid off and replaced by a new mortgage with different terms, such as a lower rate, shorter loan length, or even the type of loan. Just like a purchase mortgage, you can refinance by shopping for the best fit for you and then applying for a loan.

Why do homeowners refinance?

There are many different benefits to refinancing, depending on your own financial situation. Knowing what your goals are for a refinance can help you determine if it’s a good option for you.

  • Lower your payment: Lower your monthly payment and give yourself a little extra financial breathing room. Use the extra savings to put toward some of your other goals.
  • Lower your rate: Interest accounts for a large portion of your monthly payment. The lower your interest rate, the less you’ll pay over the life of your loan – potentially saving you thousands of dollars
  • Pay off your mortgage faster: You can reduce your term and pay off your mortgage sooner than you originally planned by switching from a 30-year loan to a 20- or a 15-year loan. Owning your home free and clear faster and likely saving you thousands of dollars in interest.
  • Get rid of mortgage insurance: Private Mortgage Insurance (PMI) is one of those extra homeowner expenses you may not realize you have some wiggle room with. Once you have paid down your loan to reach 20% equity in your home, you may be able to remove that extra cost.
  • Extra cash for home repairs and improvements: Maybe you’re ready to add on that mud room, remodel your basement, or make room for a home office. A cash-out refinance use the equity in your home for these improvements.
  • Consolidating debt: If you have high-interest debt and enough equity in your home, you could consolidate that other debt at a lower rate through a refinance.

Questions to ask yourself before refinancing

Now that you know how a refinance works, and why you might consider one, here are a few questions to be sure to ask yourself first.

  1. Is my current rate high?
    Check your mortgage statement to find out what your rate is and connect with a mortgage loan officer to see if your rate is considerably higher than current rates. They’ll be able to advise you whether the lower rate will offer significant savings over time. To do some calculations to see what scenario might be better for you, check out our refinance calculators on org/FinancialWellness.

  2. Do I qualify for a better rate?
    Before you start the refinance process, check out your credit score. Oftentimes, your credit score has improved, making you a good candidate to refinance. Check with your loan officer to see if you qualify.

  3. What will my closing costs be?
    If you’re planning to move in the next six months, it might not make sense to pay those closing costs in order to refinance. However, if you’re planning to stay put for a while, the closing costs will likely be covered and then some in the form of your savings over time. Each lender has different closing fees associated, ranging from 2-5% of your total loan amount*. By dividing your total closing costs by your monthly savings, you’ll know the number of months it will take to break even. At LMCU, we have industry low closing costs which lower the amount of time it will take for you to start realizing true savings. If you plan to stay in the home longer than your break-even point, refinancing could be the right move for you.

  4. Are my finances in order?
    Much like buying a home, you’ll need to ensure you have a solid credit score and debt-to-income (DTI) ratio prior to refinancing. The higher your credit score is the lower your interest rate. The ideal DTI ratio is 43% or less.** For tips on how to improve your DTI ratio or credit score, check out Wallet Wisdom, LMCU’s free financial library that includes podcasts, blogs, and virtual, interactive learning tools.

Are you ready to refinance? Connect with an LMCU Loan Officer at (844) 754-6280 or visit today.


*The Mortgage Reports, Guide to mortgage closing costs: Average closing costs and how to keep yours low. Gina Pogol, January 10, 2020. **Credit Karma, 2019.


Topics: Home Financing & Renovation, Wallet Wisdom, Mortgage