Refinancing your mortgage means taking out a new loan on your home, which replaces your old mortgage with a new one. To determine if a mortgage refinance is the right move, you must calculate to see if such a move will save you money. Typically, the goals of a refinance are to alter the repayment method or extend the term length. It is best to consider a refinance if you plan on staying in the home and do not anticipate the need to re-mortgage over the next few years. Every situation is different – so it's important to know where you stand with your current mortgage in paying off the principal.
Obtaining lower interest rates
Will your new loan offer a lower interest rate? If so, you could save more toward paying off the principal, and therefore pay off the loan quicker. An online loan calculator can help you determine how much you stand to save each month with a lower rate. The interest rate doesn't have to drop dramatically to offer sizable savings.
Switching to a hybrid rate mortgage
If you currently have an adjustable rate mortgage (ARM), you may want to review your adjustment date and consider one with an extended fixed initial period, such as five, seven or ten years. This product locks your rate for that initial period and could reduce the amount you are paying in interest over time. Because this type of loan is rarely sold in the secondary market, it could save you thousands in the long run, while allowing your loan to remain with the same community lender you know and trust.
Cost of refinancing
Mortgage refinance is not a cost-free process. There are closing costs associated with the transaction and should be accounted for when calculating your projected savings from the refinance. A refinance should always be done to save you money, whether in the long or short term.
For a thorough cost-benefit analysis of a mortgage refinance, visit your local North Country Savings Bank.