Your home mortgage loan is a substantial investment and might be your largest monthly bill. Refinancing your mortgage can help lower your monthly payments and allows you to reach your financial goals sooner when interest rates are low.
Mortgage interest rates fluctuate over time, so determining if refinancing your mortgage is the right choice can be difficult. Using a mortgage calculator and understanding the terms of your loan can help you decide if now is the right time for you to refinance your mortgage.
Refinancing Your Mortgage
You take out a new mortgage when you refinance your mortgage to pay off your old one. Refinancing your mortgage allows you to change the type of mortgage you have and the terms of your loan. Refinancing can lower interest rates, decrease your monthly mortgage payment, and change your loan term.
Refinancing your mortgage also allows you to switch your mortgage type. You can change from an adjustable-rate mortgage to a fixed-rate mortgage or vice versa. You can also use refinancing to adjust the length of your loan. A shorter term can help you pay less interest on your mortgage.
You can even get the money needed to make improvements to your home through a cash-out refinance of your mortgage. A cash-out refinance allows homeowners to use the money they’ve already paid toward their mortgage to make home repairs and improvements or pay off other debts they’ve accumulated.
It’s an alternative to a home equity loan and is an option when your home has increased in value.
Who Should Refinance?
The interest rates for mortgages are determined by several economic trends, including inflation, employment levels, and the housing market. Mortgage rates aren’t set by the federal reserve like other interest rates, but they tend to travel in the same direction. Mortgage brokers, not chief economists, determine their rates, which can vary over time.
Freddie Mac’s weekly survey shows an average of 2.8% for a 15-year mortgage. Freddie Mac’s weekly survey goes back to 1970, so you can follow interest rate trends for 5, 15, and 30-year mortgage rates. Lower interest rates are the best reason to refinance your mortgage. If the market’s current mortgage rates are lower than the terms of your original mortgage, refinancing can help you receive more favorable interest rates.
Lowering your interest rates reduces your monthly payments and decreases the overall cost of your loan. Refinancing your mortgage may be the right choice if you meet other criteria.
You have an adjustable-rate mortgage
Homeowners with an adjustable-rate mortgage may want to refinance and switch to a fixed-rate mortgage. The interest levels of adjustable-rate mortgages change over time. A fixed-rate loan starts with one mortgage rate set by the mortgage broker, and the rate never changes. While your adjustable-rate mortgage may have stayed steady in the past, it is always liable for future rate increases.
Refinancing to a fixed-rate mortgage locks in your rate, preventing it from going up unexpectedly. Keeping your interest rate lower can help increase your monthly savings. You’ll be able to pay more of the principal amount off faster and owe less money to the mortgage lender. Current loan rates for a 15-year fixed mortgage are 2.8%. The 30-year fixed mortgage rate is 3.55%.
Your credit score has improved
If your credit card debt has gone down or your credit score has improved since you first took out your mortgage, consider refinancing now. Your credit score and your income ratios are used to help determine your interest rate. The more significant improvement in your score, the more likely you get the lowest mortgage rate possible.
This is because a good credit report shows a mortgage company that you are not a high-risk borrower. A couple of ways to raise your credit score are paying off all debts, opening multiple lines of credit, and paying off credit card expenses on time.
You plan to stay in your home
Homeowners who aren’t planning to move in the immediate future should consider refinancing. You may want to switch your mortgage term to help lower your monthly payments or pay off your mortgage faster.
You can also use refinancing to tap into your home’s equity to pay for repairs and upgrades. Home prices across the country have increased, and a rise in the value of your home can help you earn favorable refinancing terms.
Reasons Not to Refinance Now
Refinancing isn’t always a good idea. If you took out your mortgage while interest rates were low, you might not get a better deal right now. Additional costs are associated with refinancing your mortgage, like lender fees, an origination fee, and upfront private mortgage insurance payments.
Mortgage insurance is different from homeowners insurance in that it protects the lender from default rather than protecting your home from damage.
Even the lowest rate refinancing can cost between 3-6% of your loan’s principal, which could translate to thousands of dollars. It also requires you to complete the same actions associated with buying a home:
- Going through a title search
- Getting your home appraised
- Paying an application fee and closing costs
Be prepared for your mortgage refinancing to cost you money upfront. Even if you qualify for the lowest rate, you shouldn’t refinance if you’re planning on moving within a few years. It takes time to recoup the refinancing costs, and you won’t be living in the property long enough to benefit from favorable annual percentage rates.
If you’re not sure refinancing will benefit you, use a refinance calculator or mortgage rate tables to help determine how much you can save. A refinance calculator takes your current personalized mortgage rate and compares it to potential refinance rates. It considers the out-of-pocket costs and determines when you start saving money based on the new monthly payments. Mortgage rate tables show your principal amount and interest payments over the life of conventional fixed-rate mortgages.
Benefits of Refinancing With a Credit Union
Credit unions offer unique benefits to people looking to refinance their mortgage. Unlike banks and financial institutions, credit unions are organizations run by union members and don’t have stockholders to appease. As a result, members have more say in how the organization is structured and operates.
Credit unions provide the same services as banks, including mortgage refinancing. Their non-profit status means their success translates into better average rates and terms for borrowers. They often have a lower mortgage refinance rate than for-profit banks and lower refinance closing costs associated with their loan offers.
You can expect a low upfront cost for a credit union loan because of an inexpensive loan origination fee and funding fee.
Flexible refinancing options
Since even a slight rate reduction refinance loan can mean thousands in savings over a long period, credit union and refinancing options are worth looking into. At T&I Credit Union, we have multiple financing options, and our current refinance rates are in line with or below the competitive rates listed on Freddie Mac.
Find the loan type that works for you, whether our home improvement loan or our conventional loan offerings.
You may be approved more easily for a lower mortgage refinance rate through a credit union. Their loan products are more lenient toward your credit score, often have a lower minimum credit score, and will look at your entire financial picture and history to determine your eligibility. Credit unions are an excellent choice for someone with a limited credit history or an average credit score.
Credit unions are also known for their exceptional customer service. The employees are members, too, and are invested in helping you have a positive experience. When you do well, the credit union and other members benefit. They’re more willing to work with you to help you find a loan with terms that meet your needs.
How T&I Credit Union Can Help You
Refinancing your mortgage has the potential to save you tens of thousands of dollars over the life of your loan. Homeowners in Michigan interested in refinancing their mortgage should consider T&I Credit Union.
We are upfront about our mortgage rates, fees, and closing costs to serve our members better. You can even apply for refinancing online. Contact us today for more information.