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When Should You Consider Refinancing Your Mortgage?

Aside from lowering your monthly payment and thus reducing the amount of interest that you would pay over the life of your loan, refinancing can provide benefits that may not be readily apparent to you.  With interest rates having dropped significantly over the past 12 months, now may be a good time to reconsider refinancing your mortgage.

Refinancing To Lock In A Lower Interest Rate

Clearly this is the most common reason to refinance your mortgage.  In my own personal experience, I was able to refinance a loan on my own mortgage that was just a year old and reduce the interest rate from 4.875% to 3.65%, resulting in nearly $2,400 annually in savings from lower payments!  

Shortening The Length Of Your Loan

Depending on your individual facts and circumstances, you may find that you can shorten the length of your loan from 20 years on remaining if you have a 30 year loan to 15 years and not have much of a change in your monthly payment, depending on the interest rate you're able to secure.  This can be a big benefit, especially if you can match the length of your loan to your anticipated date of retirement.  We generally recommend that clients enter their retirement years with little or no debt.

Converting An Adjustable Rate Loan to a Fixed Rate Loan

In the past 6 weeks, interest rates have been hovering at or near all-time lows.  Locking in a fixed rate loan that will not change over the life of the loan can help reduce a lot of uncertainty from a budgeting standpoint whereas adjustable rate mortgages (ARMs) can reset the interest rate on the loan, and thus change the payment amount, on the date that your mortgage resets.

Consolidating Debt Or Pulling Out Equity

Refinancing your mortgage and exchanging higher interest debt for lower interest debt can be a great way to get your financial house in order.  Many credit cards charge 16% to 24% on balances that are carried month to month.  If you are in the process of paying down credit card debt, student loan debt or any other debt with a higher interest rate, using equity from your home to pay off these balances can be a great way to get out from underneath high interest debt.

Refinancing your mortgage can provide a lot of benefits.  30 year fixed rate mortgages are still below 4% and 15 year fixed mortgages are close to 3.4%, as posted in the Wall Street Journal.  Now may be a good time to consider refinancing your mortgage and there may be other benefits that you can unlock to help improve your own financial standing!