You’ve probably heard that refinancing your mortgage can save you money. While that’s true in many cases, refinancing needs be done at the right time in order to result in a lower monthly payment and it should be done for the right reasons. Below, we’ve outlined some scenarios in which refinancing makes sense. Read them over to determine if it could be the right move for you.
You can get a better interest rate
Interest rates play a huge role in how much money you pay for your mortgage each month, as well as over the life of the loan. For example, if you put 20% on a $200,000 home with a 30-year loan, at a 4% interest rate, you would pay around $763 per month. At a 4.5% interest rate, you would pay around $810 per month. That’s a difference of $47 per month or $564 per year.
You’ve probably also heard on the news that interest rates are climbing. The reality is, however, that while they’re getting higher than they’ve been over the past few years, they’re still relatively low from a historical perspective. If you bought your house before the recession, you’ll likely be able to get a much better interest rate and you should be able to put some money back in your pocket.
Your credit score is higher
The interest rate you pay on a loan will be determined by two things: the prime rate and your credit score. The prime rate is set by the market and refers to the lowest interest rate at which money can be borrowed, commercially. This acts as the base for your rate. Then, a percentage is added to that rate, based on your borrowing history. The better your credit score, the lower that percentage will be.
If your credit wasn’t so good when you first bought your house, it’s likely that your interest rate is fairly high. However, if you’ve taken some steps to clean up your credit since then,…