Have interest rates gone down from when you originally financed your home? Has your financial situation changed since you bought your home? Has your home value increased? Answering “yes” to any of these questions could mean it’s a good time to refinance your home.
Switch to a Fixed Rate Loan
Refinancing can be done for many reasons, but switching from an adjustable-rate mortgage (or ARM) to a fixed-rate mortgage is one of the most common. Adjustable-rate mortgages can be good short-term options, but when the adjustment period kicks in, your rate could quickly exceed the current fixed rates. Switching to a fixed rate loan will provide you with more stability, making it easier to set a monthly budget.
Shorten Your Loan Term
If you are financially able to make a higher monthly payment, you could pay off your loan quicker by making additional payments towards the principal each month. Refinancing for a shorter term, however, would place you on a schedule that will keep you on track with your goal to pay off your mortgage sooner. Depending on the situation, it may be wise to refinance at a slightly higher interest rate but for a shorter term so you can pay off your home loan quicker. Even though you may pay a higher rate, you’ll pay less interest over time which will save you money in the long run.
Get Rid of PMI
If you made a down payment of less than 20 percent when you financed your home, you may be paying private mortgage insurance also known as PMI. On a conventional loan, lenders are required to automatically drop PMI once the loan balance drops to 78 percent of the original value of the home. If you keep track of your payments, you can request that the lender drop PMI once your loan balance drops to 80 percent without refinancing. FHA loans are different because they require you to have mortgage insurance for the life of the loan. However, you could refinance under a conventional home loan without mortgage insurance if your loan balance is 80 percent or less and if you meet qualification requirements. Getting a home appraisal may also help you refinance to drop mortgage insurance even sooner if the value of your home has increased.
If refinancing feels like a viable option for you, contact one of our Loan Officers at ALCOVA Mortgage today to learn more!