Most people who buy a home use a mortgage to do so because the majority of us can’t just pull a six-figure sum from our bank accounts. Mortgages are large loans that take a long time to pay off, often as much as 30 years. During the term of the loan, it can make sense to refinance. Here are some signs that it’s an excellent time to refinance your home.
Credit Score Changes
One of the most critical factors that influence the kind of interest rate you’ll get on your mortgage is your credit score. If your credit score wasn’t so hot when you bought your home, you might have gotten a higher than normal interest rate. If your credit score has improved significantly since you purchased your home, it might be time to refinance your home, as a significant increase can have a positive impact on your interest rate.
Decline in Interest Rates
Mortgage interest rates can go up or down depending on market factors. If interest rates were high when you bought your home and have since declined, now is probably a great time to refinance. If interest rates have declined by even 0.5 percentage points, it could be worth your while to refinance. Refinancing to a lower rate can significantly lower your monthly payment, and if you plan to stay in your home for a while, you should be able to easily offset the additional closing costs that come with a new mortgage.
Shortened Loan Term
Another reason to refinance is to shorten the term of your loan, which will allow you to pay off your mortgage faster. Most people get a 30-year mortgage because it offers the lowest monthly payments. However, this means you will wind up paying way more for your home than the stated purchase price. Having a shorter term means you pay much less in interest. Mortgage rates as a general rule are lower on loans with shorter terms. If you can afford the extra monthly payment, it can be a good idea to refinance your loan into a shorter term to save in the long run.
There are a number of reasons to consider refinancing your home. One thing to keep in mind is that you have to pay closing costs on the new loan, so you want to make sure you will live in the home long enough to reap the benefits of refinancing.
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