With a volatile market and shifting interest rates, you may find yourself asking, “When is the best time to refinance?” Recently, we’ve seen interest rates dip to an all-time-low only to jump back up again due to refinancing demand. When it comes to refinancing your home, it is difficult to predict market changes and pinpoint the right time to make your move. Our specialists know the uncertainties that come with refinancing, so we’ve assembled a few guidelines to help you know when you should consider refinancing.
When You Can Secure Lower Interest Rates
It may be worthwhile to refinance if you can get financing that is at least one to two points lower than your current interest rate. You should plan on staying in the house long enough to pay off the loan transaction charges (points, title insurance, attorney’s fees, etc.).
One way to use mortgage refinancing to your advantage is to take out a new mortgage for the same duration as your old mortgage. The lower interest rate will result in lower monthly payments.
For example, if you took out a $100,000 30-year fixed-rate mortgage at 5.5 percent, your monthly payment is now $568. Refinance at 3.25 percent with a 30-year fixed-rate mortgage of $100,000, and your payment will be $435 per month. That’s a savings of $133 per month, which you can then use to invest, add to your retirement fund, or do with it whatever you please.
When You Can Shorten Your Loan’s Term
Another option is to exchange your old mortgage for a shorter-term loan. Your 30-year fixed-rate payment on a $100,000 loan was $568 per month. If you refinance with a 15-year fixed mortgage for $100,000 at 3.25 percent, your monthly payment will be $703. This payment is only $135 more than your previous mortgage, but your home will be fully paid for several years sooner, for a savings of more than $30,000!
When You Can Convert to an Adjustable-Rate or Fixed-Rate Mortgage
A fixed-rate mortgage could be your best bet in a rising interest rate environment if you plan to stay in the house for several years.
An adjustable-rate mortgage may suit you if you will be moving within a few years. If rates continue to fall, adjustable-rate mortgages could result in smaller payments and eliminate the need to continuously refinance when rates drop. However, you need to ensure that you will be able to handle increasingly higher payments should interest rates rise.
During market changes, these three options are attractive ways to lower your monthly payments or shorten your loan’s terms. However, with uncertainty and the inability to predict market changes, it can be difficult to know when refinancing is best for you. If you’re considering refinancing your mortgage, consult Huberty’s Wealth Management team in Fond du Lac, Sheboygan, Ripon, and Plymouth to determine whether refinancing your home would be a good move.
-Written by Nick Deering, MBA, CFP®, CVA®, CLTC | Manager
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