FHA Loan Should I Refinance
There are several reasons to consider a refinance and many factors that can determine if it is a good idea given your circumstances. The most common reason people refinance is to take advantage of lower interest rates. Since interest rates fluctuate from day to day, there’s no guaranteeing that the rate you lock in for your loan is the best one that will ever be available. As markets move and the Fed changes rates, the cost of a loan can dramatically rise or fall over time.
People with an ARM (adjustable rate mortgage) often look to refinance to avoid volatility in their payments. What might have started out as a great interest rate for the first few years can suddenly skyrocket in changing markets. With an ARM loan, your rate can change from year to year, sometimes costing you a lot of extra money in interest. By refinancing, you can switch to a fixed interest rate over a term of your choosing.
Some mortgages are set up with balloon payments, which are large sums of money that typically are due at three, five, or ten-year increments. These payments can be very large and difficult for borrowers to handle. If you’ve got such a payment coming up, it might be worth looking into a refinance to keep your payment schedule something that works for you.
Jumbo loans are loans that exceed a traditional loan amount for your area. These loans have higher interest rates than a conventional mortgage. If you’ve built up enough equity in your home to bring the loan amount below the jumbo threshold, a refinance can be greatly beneficial in lowering your monthly payment.
Many people are in situations where their current mortgage is costing them more money than they are able to pay. If any of these circumstances apply to you, it is definitely worth looking into a refinance.
A Quick List of Sensible Reasons to Consider a Refinance
- You intend to occupy the home for several more years
- You’ve built up significant equity in the property
- You’d like to take cash out for repairs, a car, or other expenses
- To consolidate multiple mortgages, including home equity lines of credit
- Your credit has improved
- Your debt-to-income ratio has improved
- You want to remove or add someone as a co-signer on the loan
Consolidating Your Mortgage Debt
Traditionally, second mortgages and home equity lines of credit have a significantly higher interest rate than a first mortgage. By consolidating these mortgages with your first mortgage in a refinance, you can save money on your monthly payment and reduce the hassle of having to deal with multiple bills.
Taking Advantage of Improved Circumstances
Often, borrowers with a bad loan-to-value (LTV) ratio can end up with higher interest rates. If you’ve been able to pay down your interest, or if rising home prices have increased your equity, you will have a better LTV and therefore may qualify for a better interest rate.
Also, if your financial situation has improved, this can help you as well. Improved credit scores, better debt-to-income ratios, and available cash down can all help to lower your interest rate and save you significant money over the life of your loan.
Generally speaking, the longer you plan to be in the home, the more sense it makes to refinance into a lower or fixed rate mortgage. Your loan officer can calculate the amount of time it will take for your savings to cover the costs of doing a refinance so you’ll be aware of how much money you’ll save and when your refinance will start paying off.
Is a Refinance for You?
If any of the situations discussed above is true for you, it is worth talking to a loan officer to determine your best course. Remember, consulting on a refinance costs you nothing and can save you a significant amount of money.
See how much you can save by refinancing with an FHA Loan. Contact a Mortgage Advisor today.