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<h2 class="has-large-font-size" id="should-i-refinance-my-mortgage">Should I refinance my mortgage?</h2>
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<p class="has-black-color has-text-color has-medium-font-size">Mortgage rates hit record lows again and again in 2020. And interest rates are expected to stay low throughout 2021.</p>
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<p class="has-black-color has-text-color has-medium-font-size">As a result, millions of homeowners are “in the money” to refinance — meaning they could lower their current mortgage rate and save big on monthly payments.</p>
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<p class="has-black-color has-text-color has-medium-font-size">Of course, deciding when to refinance your home isn’t a simple decision. Your real refinance rate and savings depend on many different factors.</p>
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<p class="has-black-color has-text-color has-medium-font-size">So, how do you know when to refinance your home? Here are three trusted strategies that can help you decide.</p>
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<h2 class="has-black-color has-text-color has-large-font-size" id="when-to-refinance-your-home">When to refinance your home</h2>
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<p class="has-black-color has-text-color has-medium-font-size">If refinancing your home loan saves you money, there’s a good chance you should do it.</p>
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<p class="has-black-color has-text-color has-medium-font-size">Even if you just recently bought the home or completed a refinance, it’s probably not too soon to find yourself a better deal. </p>
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<p class="has-black-color has-text-color has-medium-font-size">That said, refinancing isn’t a flip of a switch. It takes some time, and there are closing costs and paperwork to consider.</p>
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<p class="has-black-color has-text-color has-medium-font-size">You’ll have to weigh the benefits of a mortgage refinance against the upfront costs to make your decision.&nbsp;</p>
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<p class="has-black-color has-text-color has-medium-font-size">There are three simple ways to look at the numbers:  </p>
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<ol class="has-black-color has-text-color has-medium-font-size"><li><strong>The break-even rule of thumb</strong>: A refinance might be worth it if the savings outweigh your closing costs within the amount of time you plan to stay in the home.</li><li><strong>Lowering your monthly mortgage payments</strong>: Refinancing for a lower interest rate and lower monthly payment can help if your budget is tight and you need to free up your cash flow. This strategy might even be worth it if your interest costs are higher in the long run.</li><li><strong>No-closing-cost refinancing</strong>: If you can find a refinance program with low or no closing costs, the decision becomes a lot easier. You’ll likely pay a slightly higher interest rate, but you might be able to avoid the out-of-pocket cost of refinancing.</li></ol>
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<p class="has-black-color has-text-color has-medium-font-size">Start by clearly defining your goals. Know what your financial objective is, and how a refinance will help you get there.&nbsp;</p>
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<p class="has-black-color has-text-color has-medium-font-size">Then check refinance rates available to you. If they’re significantly lower than your current mortgage rate, a refinance is likely worth it.</p>
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<h2 class="has-black-color has-text-color has-large-font-size" id="strategy-1-the-refinance-to-break-even-rule-of-thumb">Strategy 1: The ‘refinance to break even’ rule of thumb&nbsp;</h2>
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<p class="has-black-color has-text-color has-medium-font-size">Your biggest consideration when refinancing will probably be closing costs. As with the original mortgage, closing costs for a refinance can easily total a few thousand dollars.&nbsp;</p>
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<p class="has-black-color has-text-color has-medium-font-size">With that in mind, the first question to ask yourself is:&nbsp;<em><strong>Will I stay in the house long enough after refinancing to reach the break-even point? &nbsp;</strong></em></p>
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<p class="has-black-color has-text-color has-medium-font-size">The break-even point is when your total savings equal the amount you spent on refinance closing costs. After that point, you start seeing ‘real’ savings on your new loan.</p>
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<p class="has-black-color has-text-color has-medium-font-size">You can get a simple answer to this question by dividing your closing costs by your estimated monthly savings. For example:</p>
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<ul class="has-black-color has-text-color has-medium-font-size"><li>Refinance closing costs and fees: $3,000</li><li>Monthly savings: $300</li><li><strong>Time to break even: 10 months</strong></li></ul>
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<p class="has-black-color has-text-color has-medium-font-size">In this scenario, the homeowner won’t start seeing savings until 11 months in. If they’re planning on staying in the house for another few years, a refinance is probably in their best interest.</p>
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<p class="has-black-color has-text-color has-medium-font-size">Here are a couple more tips for calculating your refinance savings:</p>
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<ul class="has-black-color has-text-color has-medium-font-size"><li><strong>Closing costs to consider include title, escrow, and origination fees</strong>. Ignore prepaid items like taxes and insurance, since you’ll have to pay those anyway</li><li><strong>Look at your interest savings, not your payment savings.&nbsp;</strong>The goal is to pay significantly less in interest over the life of the loan, not just to lower your payment</li></ul>
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<p class="has-black-color has-text-color has-medium-font-size">If you’re planning on moving or selling before you’ll break even, take another look at your goals.</p>
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<p class="has-black-color has-text-color has-medium-font-size">There might still be reasons to refinance (like freeing up your cash flow, below), but it’s more likely to be a wash. You might wait till interest rates drop a little lower and you can break even faster.</p>
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<h2 class="has-black-color has-text-color has-large-font-size" id="strategy-2-the-cash-flow-refinance-method">Strategy 2: The cash-flow refinance method</h2>
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<p class="has-black-color has-text-color has-medium-font-size">Saving money over the life of your loan is a great reason to refinance. But it’s not the only one.</p>
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<p class="has-black-color has-text-color has-medium-font-size">Say you’re a few years into your current loan, and really struggling with monthly payments. (It can happen to anyone.)&nbsp;</p>
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<p class="has-black-color has-text-color has-medium-font-size">Refinancing into a new 30-year term might increase your total interest payments over the life of the loan. But if it lowers your monthly payment and frees up some day-to-day cash? Refinancing might be worth it anyway.&nbsp;</p>
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<p class="has-black-color has-text-color has-medium-font-size">Here’s an example of how this type of refinance might shake out:</p>
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<figure class="wp-block-table"><table><tbody><tr><td>&nbsp;</td><td>Original mortgage</td><td><strong>Refinanced mortgage</strong></td></tr><tr><td>Loan balance</td><td>$300,000</td><td>$300,000</td></tr><tr><td>Remaining term</td><td>23 years</td><td>30 years</td></tr><tr><td>Interest rate</td><td>4.75%</td><td>4%</td></tr><tr><td>Total interest remaining</td><td>$190,000</td><td>$215,000</td></tr><tr><td>Monthly payment</td><td>$1,800</td><td>$1,400</td></tr></tbody></table></figure>
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<p class="has-black-color has-text-color has-medium-font-size">This homeowner would save $400 per month by refinancing. That extra cash can make a meaningful dent in monthly bills and living expenses. It could make all the difference in affording their home.</p>
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<p class="has-black-color has-text-color has-medium-font-size">However, refinancing into a new 30-year term also means this person would pay an extra $25,000 in interest over the life of the loan.</p>
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<p class="has-black-color has-text-color has-medium-font-size">Whether or not this type of refinance is worth it depends on your unique situation.</p>
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<p class="has-black-color has-text-color has-medium-font-size">The important thing is that you’re fully aware of both the short- and long-term effects on your bank account before making a decision.</p>
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<h2 class="has-black-color has-text-color has-large-font-size" id="strategy-3-no-closing-cost-refinance">Strategy 3: No-closing-cost refinance</h2>
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<p class="has-black-color has-text-color has-medium-font-size">There’s one more surefire refinance strategy: The no-closing-cost refinance.</p>
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<p class="has-black-color has-text-color has-medium-font-size">Believe it or not, any lender can offer you a refinance with no closing costs. But it’s not&nbsp;<em>exactly</em>&nbsp;a free lunch.</p>
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<p class="has-black-color has-text-color has-medium-font-size">A no-closing-cost refinance still technically has closing costs. You just don’t pay them upfront.</p>
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<p class="has-black-color has-text-color has-medium-font-size">You can either finance the closing costs (paying them off over the life of the loan) or accept a higher interest rate in return for the lender covering your upfront fees.</p>
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<p class="has-black-color has-text-color has-medium-font-size">That might sound backward, considering that you’re probably refinancing because you want a lower rate.</p>
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<p class="has-black-color has-text-color has-medium-font-size">But if mortgage interest rates are low enough, you can likely see a slight uptick and still save a lot in interest in the long run.</p>
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<p class="has-black-color has-text-color has-medium-font-size">For example, imagine you’re refinancing a 30-year, fixed-rate loan of with a balance of $300,000 and a 4.75% interest rate:</p>
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<figure class="wp-block-table"><table><tbody><tr><td>&nbsp;</td><td>Refinance with closing costs</td><td>Refinance with no closing costs</td></tr><tr><td>Loan balance</td><td>$300,000</td><td>$300,000</td></tr><tr><td>New interest rate</td><td>3.75%</td><td>4%</td></tr><tr><td>Closing costs</td><td>$3,000</td><td>$0</td></tr><tr><td>Total interest savings (over 30 years)</td><td>$93,400</td><td>$77,800</td></tr></tbody></table></figure>
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<p class="has-black-color has-text-color has-medium-font-size">Paying $3,000 in closing costs would save this homeowner more over the life of the loan, of course.</p>
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<p class="has-black-color has-text-color has-medium-font-size">But if they can’t (or don’t want to) pay $3,000 out of pocket, they can still save more than $70,000 over 30 years with a no-closing-cost refinance. That’s not a bad deal.</p>
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<h2 class="has-black-color has-text-color has-large-font-size" id="good-reasons-to-refinance-your-home-loan">Good reasons to refinance your home loan</h2>
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<p class="has-black-color has-text-color has-medium-font-size">The three strategies above should help you figure out whether a refinance is worth it based on the amount of money you can save.</p>
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<p class="has-black-color has-text-color has-medium-font-size">But a refinance can help you with other financial goals, too — aside from just reducing your mortgage payments.</p>
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<p class="has-black-color has-text-color has-medium-font-size">Here are just a few good reasons to consider refinancing your mortgage:</p>
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<ul class="has-black-color has-text-color has-medium-font-size"><li><strong>Cancel mortgage insurance:</strong> You can use a refinance to get rid of mortgage insurance (either PMI or MIP) if you’ve built enough equity in the home.</li><li><strong>Refinance to a shorter term</strong>: You can pay off your home sooner by refinancing from a 30-year mortgage to a 15-year loan, or a less common loan term like a 10 or 20-year mortgage. Rates are usually lower, but your monthly payment will increase since you’re paying off the loan with fewer payments.</li><li><strong>Get out of an ARM and lock low rates</strong>: Adjustable-rate mortgages usually start with low rates, but they can spike later. Refinancing into a fixed-rate mortgage can help you lock in a low rate for the rest of your loan term. </li><li><strong>Get cash out: </strong>As you pay down your mortgage, your home equity grows. A cash-out refinance lets you access some of that equity money to pay for renovations, kids’ college tuition, or other big-ticket items.</li><li><strong>Consolidate debt: </strong>You can also use a cash-out refinance to pay off high-interest debt, like from credit cards or personal loans, at a lower interest rate. Use extreme care with this method, as it’s easy to run debts back up and end in a worse place than where you started.</li><li><strong>Pay off liens, second mortgages, or judgments: </strong>If you’ve taken out a second mortgage (“piggyback” loan), home equity line of credit, or other judgment on the property, you can use a cash-out refi to pay these things off.</li></ul>
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<h2 class="has-black-color has-text-color has-large-font-size" id="refinance-requirements">Refinance requirements</h2>
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<p class="has-black-color has-text-color has-medium-font-size">Refinancing your home means taking out an entirely new mortgage to replace your old one. As such, you’ll need to complete a full loan application and pass basic mortgage loan requirements.</p>
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<p class="has-black-color has-text-color has-medium-font-size">The minimum requirements to refinance depend on the loan program you’re using.</p>
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<ul class="has-black-color has-text-color has-medium-font-size"><li><strong>Conventional refinance loans </strong>typically require a credit score of 620 or higher. If you have at least 20 percent equity, you can avoid paying for private mortgage insurance and you’ll save more money.</li><li><strong>FHA refinance loans </strong>usually require a credit score of 580 or higher. If you want to take cash out, you’ll likely need a credit score of at least 600. FHA Streamline Refinances technically do not require credit, income, or employment verification — or a new appraisal. However some lenders may check those criteria anyway. FHA refinance loans charge mortgage insurance premium (MIP), but if you have at least 20 percent home equity, you can likely refinance to a conventional loan with no mortgage insurance.</li><li><strong>VA refinancing </strong>usually requires a credit score of at least 620, though some mortgage lenders are more lenient. VA loans do not require mortgage insurance and typically have the lowest interest rates of any mortgage program. The VA Streamline Refinance or ‘IRRRL’ does not require income or employment verification, or a new appraisal.  </li><li><strong>USDA refinancing</strong> typically requires a credit score of at least 640. Just like for USDA home purchase loans, the property must be located in an eligible ‘rural’ area. USDA borrowers also have access to a streamlined refinancing program with looser documentation requirements.  </li></ul>
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<p class="has-black-color has-text-color has-medium-font-size">Which refinance option is right for you? That depends on your credit report and score, your current mortgage, your home value and loan amount, and your overall goal for refinancing.</p>
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<p>To read the full article, <a href="https://themortgagereports.com/56825/three-foolproof-ways-to-know-when-to-refinance-your-mortgage-video">click here.</a></p>
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