Closing cost va loan calculator12/11/2023 Locking in a fixed rate provides both predictability and protection from future rate increases. Refinancing can help you reduce future risk, according to Jason Fink, a professor of finance at James Madison University in Harrisonburg, Virginia. Switching to a fixed-rate loan: If you have an adjustable-rate mortgage, switching to a fixed-rate loan could be a good move.Many homeowners use a cash-out refinance to pay for home improvements. Getting cash out of your home: With a cash-out refinance, you apply for a new loan that’s larger than what you owe on your old loan - and take the difference as a cash payment.Reducing the length of the mortgage also lowers the total amount of interest you’ll pay over the life of the loan. With a lower interest rate, you may be able to switch to a 15-year loan and still have a manageable monthly payment. Paying off your mortgage sooner: If your original mortgage was a 30-year loan, you could refinance to pay it off sooner.Most experts recommend refinancing if you can reduce your interest rate by 0.75%. The amount you’ll save each month depends on the size of your mortgage and how much lower the new interest rate is compared to your previous loan. Reducing your monthly payments: Switching to a new loan with a lower interest rate or longer repayment term can reduce your monthly mortgage payment. ![]() Some of the most common scenarios include: There are many good reasons to refinance when conditions are right. If you secured your existing mortgage when interest rates were higher than they are today, refinancing at a lower rate can save you money on your monthly payment or allow you to pay off the loan faster (and sometimes both). ![]() When you refinance your mortgage, you pay off your existing mortgage with a new home loan that comes with new rates and terms. “In the current market with elevated rates, we see people doing refinances for very specific reasons, including needing to tap into the equity of the home, taking someone off of a mortgage or because their adjustable rate mortgage has expired,” said Sarah Alvarez, vice president of mortgage banking at William Raveis Mortgage. But that doesn’t mean refinancing isn’t an option for some. Unless you purchased a house within the past year, it’s unlikely you’ll be able to nail down a mortgage with a lower rate. Mortgage rates may creep lower by the end of the year, but the days of rates in the 2% and 3% range are not in the near future. Last year’s run up in mortgage rates has led to a drop in refinancing activity, and homeowners who would’ve sought cash-out refinances have instead turned to home equity loans and home equity lines of credit as a way to get cash out of their properties while keeping their existing mortgage. During its September meeting, the central bank opted to hold its federal funds rate steady, while leaving the door open to an additional rate increase before the end of the year. Softer inflation data, though, has prompted the Fed to take a break from its current rate hiking cycle. Mortgage rates, which are indirectly affected by rate hikes from the Fed, increased too. In an effort to cool surging inflation, the Federal Reserve has hiked its key short-term interest rate 11 times. Over the past year and a half, though, mortgage rates have more than doubled. What to know firstĭuring the pandemic, mortgage interest rates decreased dramatically and many homeowners jumped at the opportunity to refinance their existing mortgages and secure new, lower rates. ![]() ![]() If you’re eager to refinance, it could still make sense in a high-mortgage rate environment, but that all depends on your financial situation and what you plan to do with the cash. Refinancing your mortgage replaces your existing mortgage with a new one that has a different loan amount and interest rate. When you refinance your mortgage, the primary objective is to save money by getting a lower interest rate. With today’s high mortgage rates, it’s difficult for homeowners to refinance.
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