The mortgage payment on your home is typically the biggest monthly expense for most families. Saving even a percentage point or two on the interest of that mortgage can save you thousands of dollars over the life of the mortgage. Can you save money with a mortgage refinance? The answer is yes, but there are several points to consider when refinancing your mortgage.
First, how long do you intend to remain in the home? The reason to consider this is that all mortgages have closing costs, if for example a refinance saves you one thousand dollars a year and the closing costs were two thousand dollars you would need to remain in your home for two years to recoup the closing costs. It therefore wouldn’t be in your interest to refinance if you knew your company was going to relocate you in eighteen months.
Another important point to remember when looking to save money with a mortgage refinance is to determine what type of mortgage you would prefer. Would you prefer a thirty-year mortgage with lower monthly payments? Perhaps the additional savings from the refinance would make a shorter mortgage of twenty or even fifteen years more appealing, especially to those who will be retiring somewhere in that time frame and don’t want to carry a mortgage payment into their golden years.
The type of mortgage is also a very important consideration in mortgage refinancing. Is a fixed-rate mortgage with its consistent monthly payment something you value? If you only plan to be in the home for a few years then the lower rates of an Adjustable Rate Mortgage (ARM) may be a good alternative. ARMs come in many forms, the most common type is the one-year ARM which is an interest rate that can be adjusted once per year. There are also many different types of hybridized ARMs that include an initial rate for a specific length of time followed later by yearly adjustments.
These are the main things to consider when trying to save money with a mortgage refinance. Determining the type of mortgage and how long you wish to carry the mortgage will make getting started much simpler.