Interest Rates: Should You Refinance Your Loan?
When interest rates drop, you might be wondering, “Is now a good time to refinance my existing loan?” Here are 3 things you should consider when making your decision.
Should You Refinance Your Loan?
Refinancing your home or land loan is something everyone thinks about when interest rates are low. Having a lower interest rate means lower monthly payments, but is it the right option for you? It's important you look at more than just the rate when weighing this decision.
3 Things to Consider
• Closing Costs
If you have a good credit score, now would be a good time to check in with your lender to see if you qualify to refinance to a lower rate to save on your monthly payments.
Remember, not every interest rate is the same so make sure you are comparing apples to apples. If you have an adjustable-rate loan, you may want to consider refinancing to a fixed rate. Payments may start lower with an adjustable-rate, but can climb quickly. Over the course of your 3 or 5 year balloon loan, if home or land values drop, you might be left paying more for an asset than it's worth. If interest rates are low, you might want to consider locking that rate in long term. By obtaining a fixed-rate loan, you can avoid the risk of your payments increasing because of rising interest rates.
If your property’s value has increased since you bought it, the difference in what you paid for it initially and what it’s worth now may increase the amount of equity in your investment. The same is true if you've been paying on your property for a few years. Those loan payments have increased your equity by reducing the amount of principal you owe against it. Generally, the more you have invested in the property (the equity), the lower your interest rate will be.
Another consideration in determining whether refinancing is right for you is your cost to obtain the loan. Your lender will charge fees to cover the updated title and appraisal, taxes and recording fees and for preparing the necessary paperwork. You’ll also need to consider attorney’s fees. Refinancing costs, which can be 3 to 6 percent of the loan's principal, can take years to recoup. Your lender can calculate your total closing costs for a refinance should you decide to proceed.
If you've decided now is the right time to refinance your existing loan, or maybe you have questions about whether or not you should refinance, our loan officers and mortgage originators would love to talk with you! Contact us online or call 844-AGSOUTH.