Should I Refinance?
Refinancing your Loan through FHA in Your City, Your State
Would refinancing be good for you? It depends.
Yes, you could lower your monthly payments. For many people that's the most attractive benefit.
But there are other things you must also consider. The interest rate, the loan term, your financial circumstances, and your future plans should factor in too.
Here's a list of things that could make refinancing profitable for you. If even one of them applies, you should look into an FHA refinance.
If your current loan:
- Has a high interest rate
- Has an adjustable rate
- Has a balloon payment coming due
- Is a jumbo loan
These things could also make it sensible to refinance:
- You plan to stay in your home for several more years
- Your home has some equity now
- You'd like to take some cash out
- You have a second mortgage
- You have a home equity line of credit (HELOC)
- Your credit scores have improved
- Your debt-to-income ratio has improved
- You need to add or remove someone as a signer on your mortgage
Now, let's discuss these factors in more depth.
Getting Out of a Bad Loan
Many homeowners have mortgage loans that are costing them more than necessary. If your interest rate is higher than the prevailing rate now, it could make sense to refinance.
Likewise, if your loan has an adjustable rate, that leaves you vulnerable to future rate increases. It might be wise to take advantage of today's low rates and get into a fixed rate FHA loan.
Some loans have balloon payments due at a certain date. If yours does, you can avoid that painful cash outlay with a new loan.
Consolidating Your Mortgage Debt
Second mortgages and home equity lines of credit (HELOC's) almost always have higher interest rates than first mortgages. That means you're paying a lot in interest on those loans. You can eliminate that waste by rolling your second mortgage or HELOC into your new refinanced FHA loan. The entire balance will now accrue interest at the new, lower rate—saving you money.
Taking Advantage of Your Improved Circumstances
Has your home gained equity since you got your current loan? Your improved loan-to-value could help you secure a better interest rate on a new loan.
Likewise, if your financial situation has improved, that can help you too:
- Your improved credit scores could help you secure a lower interest rate.
- A better debt-to-income ratio could also get you a lower rate.
- If you have cash to put down toward your refinance, you can pay closing fees upfront, or buy down the interest rate. That saves you money over the entire life of the loan.
Settling in for the Long Haul
Do you plan to stay in your home for several years? That makes a refinance even more attractive. Once your payments have covered the cost of the new loan, you'll start saving money every month. Over a period of years, the savings can be huge.
Here's an example:
Let's say you have a $200,000 loan at a 5% percent interest rate.
If you refinanced at a rate just one percent lower - 4% - your monthly payment would be reduced by $164.
But over the life of the loan you'd save a whopping $15,627.
That's the savings from just a one-percent rate reduction. Your situation may yield even better results.
So, will refinancing make sense for you?
There's one sure way to find out—consult a professional. There's no cost for inquiring. And a seasoned loan officer can give you sound guidance without any commitment on your part.
Find out now if an FHA refinance makes sense for you.