The Whys and Hows of Refinancing a Mortgage

As you examine your finances, you may discover you could be paying for your home in a smarter way. Whether you want to lower your monthly payment, reduce your interest rate or move some cash around for other life expenses, refinancing your mortgage could help.

With so many things to consider when refinancing a home, the process may seem complicated. But all you need is a good plan. Review the information below to make an informed mortgage decision.

What to look for when refinancing your mortgage
First, look at home refinancing rates. You’ll get the best deal if you refinance when rates are low. “Over the last decade, we’ve seen some historically low interest rates. But that doesn’t mean you shouldn’t refinance today. Some homeowners may have initially qualified for a mortgage with a higher interest rate. A decade later, many of these homeowners have improved their financial situation and can save significantly,” says Amy Moser, vice president of mortgage services at Mountain America Credit Union.

Ideally, your new loan's interest rate should be at least one percent lower than your current loan. That might sound insignificant, but it could save you thousands in the long run. Benefit from even bigger savings if you opt for a shorter term on your new loan.

Take the time to understand the contract fully. Research origination fees, discount points and other add-ons that could affect your payment to get a better idea of the overall cost. You don't want to go through the trouble of switching loans just to end up saving only a nominal amount.

Finally, use an online mortgage calculator to model different loan options and assess what your payment could look like. Try different interest rates and term lengths to find out what works best for your situation.

Benefits and risks of refinancing your mortgage
Refinancing a mortgage can be a difficult decision. Consider the following information to make an informed choice:

Benefits:

• Take advantage of current refinancing rates to reduce your overall monthly loan payments.




• Switch to a shorter term to pay off your mortgage faster.




• Utilize your home's equity to pay off debt faster.




• Use the equity in your home to get cash for other expenses quickly.

Risks:

• Your credit score helps determine how low your interest rate will be.




• Closing out your original loan could result in hidden fees, depending on your contract.




• Not all mortgage interest is tax deductible. Check with your tax advisor to understand the rules.

Is refinancing a mortgage worth it?
Ultimately, refinancing a mortgage is a good opportunity to pay less interest on your home over a shorter period of time. It’s likely a good decision if you're in good financial standing, plan on staying in your current home for the foreseeable future and have a trustworthy lender who can walk you through the terms.

If your credit could use some work or you plan on moving into a new house soon, hold off until you're in a more stable position. Interest rates will certainly fluctuate and can eventually come back in your favor.

Whatever your mortgage needs may be, Mountain America Credit Union can guide you forward to achieve your financial goals—whether that involves lowering your payment, changing the loan term or consolidating debt.