Why might I want to refinance?
The idea behind refinancing a home mortgage is simple: You’re taking out a new loan to pay off and replace the current one. The goal is to lower your interest rate, reduce the loan term, switch a loan type, or to access the equity in your home.
One reason to refinance might be to shorten the term of your loan – say from 30 years to 15 so you’d pay less money for your home overall.
If you currently have a $200,000, 30-year loan at 3.511% Annual Percentage Rate (APR) your monthly payment would be $866.96 (principal & interest), or $319,307.17 total over the term of the loan.
However, if you were able to refinance to a 15-year mortgage with a lower rate, maybe 2.604% APR, your monthly payment would increase to $1,324.18, but you’d pay $238,352.40 total. That’s over $80,000 less overall*!
Other Reasons and Considerations
Another reason to refinance would be to switch from an adjustable rate mortgage to a fixed rate, which would protect you if the adjustable rate were to rise.
Refinancing does come with some costs, which can run into the thousands of dollars. There will be a variety of fees and other expenses, such as points, that will need to be paid up front. If you have to pay 1% on a $200,000 loan, for example, that would be $2,000.
If you’re considering refinancing, speak with your lender about your options and costs before making a decision. They’ll also have a variety of questions about income, expenses and your credit score that can affect your loan and rate.
The ultimate goal is to make sure refinancing makes good financial sense for you.
*Estimates are based on a loan amount of $200,000 with 20% down payment, prepaid finance charges of $1,324.18 and a credit score of 740.
The actual rate available to you will be based upon your credit history and may be different than the rate disclosed.
Rates are for the financing of a single-family primary residence with a 45-day lock.
If the down payment is less than 20%, mortgage insurance may be needed, which could increase the monthly payment and APR.
Rates also may be higher for cash-out refinances above 70% Loan-to-Value, non-escrowed loans, loan amounts below $100,000 and/or loan amounts greater than $548,250.
30-Year Fixed = 360 monthly payments. 15-Year Fixed = 180 monthly payments.
Payment does not include taxes and insurance and actual payment obligation may be greater.