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With interest rates so low right now, many people are asking – is now a good time to refinance your mortgage? That can be a tricky question to answer since everyone is in a different situation, but here are a few things to think about as you explore your options.
Is Now a Good Time to Refinance for a Better Interest Rate?
The most common reason people refinance their mortgages is to nail down a better interest rate. It doesn’t take a huge drop to make a big difference over time.
For example, let’s say your mortgage is $250,000 and your current rate is 4.25%. In that case, your monthly payment is probably about $1,230.
What if you can drop the interest rate to 3.25%? That drops your monthly payment to $1,088. That’s a savings of $142 per month.
No big deal, right? However, over 30 years, that comes out to saving over $51,000. That’s no joke.
When you think about what’s going on in the world and the current interest rates, that shows right now is a great time to refinance. Rates are low, so you can probably get a better rate on your mortgage.
Should You Refinance Your Home to Get Rid of Private Mortgage Insurance?
Private Mortgage Insurance, or PMI, is a fee that many mortgages require if you don’t put down at least 20% equity as a down payment. This fee hurts, and any homeowner who has ever paid it will tell you they were excited on the day they finally got rid of it.
Private Mortgage Insurance tends to be between 0.5% to 1% of the entire loan amount, paid on an annual basis. Those are small percentages, right? No big deal?
Think about it like this – On your $250,000 mortgage, that means you’re paying $2,500 a year towards PMI. That’s about $200 a month – that’s a lot of money!
This isn’t going towards the equity of your home. It’s going straight into the bank’s pocket. Great for them, not great for you.
If you’re at a point where you can refinance the home and have enough equity to avoid PMI, now is a great time to do it. Especially considering how low rates are right now.
If I Refinance Now, Will I Miss Out on Lower Rates in the Future?
This is a tough one and unfortunately nobody knows for sure.
Will interest rates drop in the future? They might. Banks need to make money too, and right now they’re starting to be conservative because they’re receiving so many requests to refinance. Some are even artificially inflating their interest rates or restricting access, such as not answering phones, because they’re so swamped.
One thing this means is that even if you apply to refinance today, you may not be able to close on it for a few months. That’s how backlogged these banks are.
This is a strange, busy time for people, but it’s also a great time to refinance, so it makes sense to explore your options. Give us a call at 844-6-VA-LOAN and we’ll see what we can do to help you get locked in as soon as possible.
Courtesy of Cuselleration