Should I refinance my mortgage?

As a homeowner, one of the biggest assets you have is your house. Whether you’re looking to lower your monthly payments, lower your interest rate, shorten the term of your loan to reduce interest expense or access your equity for cash or debt consolidation, there are a lot of factors about when should you refinance your home. (Or even if you should!)

Let’s work through what is refinancing and help to figure out if refinancing is worth it with some commonly asked questions:

• What are the benefits for refinancing a home?
• How does refinancing work?
• How much should a refinance cost?

Benefits for refinancing a home

Why should you refinance often falls into three main areas:

Lower interest rates

As the market changes, home loan rates often change as well. When home loan rates are low, many people will look in to refinancing in order to lock in a better mortgage rate.

If you purchased your home when your credit score was less than stellar, or interest rates were higher, you may now qualify for a better rate. If you have you been paying  Private Mortgage Insurance on your home loan, could be another reason to refi your mortgage

A lower interest rate on your home loan could mean adding the savings to your monthly budget. These new found savings could go towards other debt or your savings goals. You’re not only saving money with a lower monthly payment, but you are paying less interest over the lifetime of the loan.

The same holds true if you refinance to shorten loan terms, like a 15 year or 20 year. You’ll most likely pay a bit more each month, but over the lifetime of the lifetime of the loan your savings could be huge.

Cash

A cash-out refi, is a new home loan on your existing house where the difference goes to you in cash. This can then be spent on home improvements, debt consolidation or other needs.

For example: If your home is valued at $300,000 and your mortgage balance is $100,000, you have $200,000 of equity in your home. You could refinance your $100,000 loan balance for $150,000, and receive $50,000 in cash at closing.

Depending on the current rates for a home loan refinance, another option to consider would be a home equity line of credit or home equity loan. A home equity loan or home equity line of credit provides a loan on the value you already own in your home and doesn’t require a refinance.

Life changes

We know that life is in constant motion, and a home refinance can keep up with those changes. So, whether you’re in a new place in your life with a job, family, or maybe came into some moolah (hellooooo lottery win!) you may want to update your current home loan to match your new life circumstances.

What is the risk of refinancing

Better rates are coming? Cost of getting an appraisal? Hit on your credit report?

It may feel like the biggest risk of a refi is that a better rate might be right around the corner or the out-of-pocket cost of getting an appraisal. However, the true risk is when a refi just doesn’t make sense for you.

Just because there are lower rates than what your current home loan is at, doesn’t mean you should refi.  Does the cost savings benefit outweigh the cost of refinancing?

Considerations like

• how long you will remain in your home
• how different the rate is from your current loan
• relationship discounts with your financial institution
• how long will you keep the loan

These all play a role in whether it’s the right time for you to refinance.

How does refinancing work?

How can I refinance my mortgage

Call our Member Service Center at 800.433.1837 to see if it’s the right time for you to refinance your home.

Factors to consider for refinancing a home

There are several factors to consider including:

• Credit score
• Home’s value
• Loan type
• Future plans
• Refi costs vs benefits

What does the refinance process look like?

A refinancing should begin with you deciding if it’s a SMART Goal for you. Are you looking for a better rate or for extra funds to pay down debt? Understanding your goal is an important part of the process in order to achieve it.

Talk with a lender. Numerica has several types of loans and you want to be sure you know your options. You may also qualify for a relationship discount.

Apply and close on your loan. When you apply for the loan, it locks in at the current interest rate. Locking in your rate helps to ensure that if rates fluctuate, your loan won’t be affected. Once the loan is approved, you will sign some paperwork, and be on your way. Major difference from when you bought your home? You already have the keys!

How much should a refinance cost?

Ahhhh yes, the big question!

Costs for a refinance include:

• A credit report
• Appraisal fees
• Taxes
• Closing costs

A good rule of thumb for typical closing costs on a refinance is to look at the original costs when you purchased your home. For most homeowners these costs are typically between 1-3%.

Can I refinance my mortgage with no closing costs?

Yes, you could refinance without paying out of pocket. You could roll your closing costs into your loan versus paying them upfront. If this is the route you decide to take, just be aware that your monthly payment will increase.

Does refinancing hurt your credit score?

Since one of the steps in refinancing is to have your credit score pulled, it will take a bit of a dip.

When you refinance, you’re replacing your current loan with a new one. This means you “close” your existing, long-standing loan, which can also have an impact on your credit score.

Making sure to refinance while your mortgage is in good standing will help to balance out the effects of this. And as you make payments on time with your new loan, your credit score should bounce back.  (Who knows? You might be able to make larger payments than the minimum payment, which could help your credit score too!)

Is refinancing worth it?

There is a break-even on whether it is “worth it” to refinance. The answer may be “no” or it may be “I wish I did it sooner!”

Want to figure out how long it could take for your refinance to pay for itself?

Divide your mortgage closing costs by the monthly savings your new mortgage will get you.

Closing costs ÷ savings = months needed to break even

The benefits of refinancing your mortgage which may include:

• Reduce monthly mortgage payments
• Get a lower interest rate
• Convert your home equity into cash
• Switch to a fixed-rate loan
• Shorten loan term to reduce interest paid