*This post is sponsored by Fannie Mae. All opinions are 100% my own.
It’s no secret that mortgage interest rates are historically low. If you own your home, then you’ve likely heard about the benefits of refinancing your mortgage for a lower interest rate.
Refinancing your home is an important, potentially cost-saving option to consider, but it doesn’t have to be stressful. In fact, there are currently options available to homeowners who might have disregarded refinance opportunities before!
It’s important to know what refinancing means, explore its benefits, and ask yourself the important questions before you sign on the dotted line.
This article will cover:
- what refinancing your mortgage actually means.
- the benefits of refinancing a home.
- questions to ask yourself before you refinance your home.
- your next steps when it comes to refinancing.
- our family’s reason for refinancing (and how it’s helping us save money).
Ready to learn more about these incredibly low interest rates and how they can help you with your mortgage? Let’s dive in!
What is refinancing?
When you refinance your mortgage, you’re simply replacing your current mortgage with a new one. This new mortgage may be beneficial in many ways, such as allowing you to lower your monthly mortgage payment or even paying off your mortgage sooner.
Many people assume that refinancing might not be a good fit for them due to high levels of debt relative to income, a poor credit score, or the price of closing costs. However, don’t let that stop you from learning more about refinancing your home mortgage.
Fannie Mae is dedicated to offering you tools and support to help you understand if refinancing your home is an option you should consider. Don’t let the fear of your current financial situation hold you back from learning more!
3 Reasons to refinance your home
You might be wondering why someone would refinance their home mortgage. Well, there are many benefits that come with refinancing.
1. Decrease your monthly mortgage payment
Refinancing at a lower interest rate may help decrease monthly payments, which could increase monthly savings an average of $100 to $250 a month, according to the Federal Housing Finance Agency. This means that you’ll have more money left in your budget each month to reach your other financial goals.
By refinancing to a lower interest rate, you may be able to reduce the total amount of interest you pay over the life of your loan so long as you don’t extend your loan term. This is exactly what our family experienced, and it has been a nice perk of refinancing our home mortgage. But note even with a lower rate, the total amount of interest over the life of the loan could still increase.
2. Shorter term allows you to build home equity
Equity is how much your home is worth minus how much you owe. As your equity increases, the more money (or profit) you will make if you choose to sell your home. Ultimately, refinancing your home for a shorter term means that you’ll build equity in your home and pay it off sooner.
For example, if you refinance your home from a 30-year mortgage to a 15-year mortgage, you’ll build equity in your home sooner because you’ll be paying less in interest, as well as paying more toward the principal amount. While shortening your term will allow you to be mortgage-free faster, it might also increase your monthly mortgage payments.
Before deciding to shorten the term of your loan, be sure that you can afford the monthly mortgage payments in your budget. Fannie Mae’s Refinance Calculator can give you an idea of just how much your monthly mortgage payments will be once you refinance.
3. More stability with a fixed-rate mortgage
If you currently have an adjustable rate mortgage (ARM), then you may want to consider refinancing and switching to a fixed rate mortgage. A fixed-rate mortgage allows you to always know what your mortgage payment will be. Essentially, your principal payment and interest payment will stay the same for the term of your mortgage.
With more predictable mortgage payments, you’ll have more stability when it comes to one of your largest budget categories – your housing.
If you know that your family could benefit from even one of these three reasons for refinancing your home mortgage, then Fannie Mae is ready to help you learn more about refinancing and your next steps.
Questions to ask yourself before you refinance your home
Before you decide it’s time to refinance, it’s best to ask yourself a few questions to be sure this choice would be best for you and your family.
Below are 5 questions to consider before signing on the dotted line.
How long will it take to recover the money you invest in refinancing costs?
Refinancing your mortgage does cost money. The amount will depend on your own situation. However, when you are refinancing to a lower interest rate, these costs may pay off eventually.
Fannie Mae’s Refinance Calculator allows you to estimate how much your closing costs will be as well as what your new monthly mortgage payment might be. I personally used this calculator to input my own home’s information for refinancing and it was incredibly accurate! I learned how much my new mortgage payment would be and how much I could potentially save on this year’s payments.
How long do you plan to stay in your home?
If you’re planning to refinance your home, be sure to think ahead about how long you want to be in your home. The longer you stay in your current home, the more likely you are to see the benefit financially after paying for closing costs.
Are you refinancing to decrease your monthly payments?
Refinancing your home to a lower interest rate can actually help you decrease your monthly payments. This is great if you would like to free up extra cash flow each month to work toward other financial goals.
Are you hoping to ensure your mortgage payments don’t change over time?
If you currently have an adjustable-rate mortgage, then refinancing to a fixed rate mortgage will allow your mortgage payments to stay the same month in and month out. This type of fixed expense brings an added stability to your budget each month.
By answering each of these questions, you’ll understand why refinancing may or may not be the best choice for you.
Your next steps for refinancing your home
Are you ready to look into refinancing your home? Great!
Fannie Mae offers more information to help you learn more about refinancing your home. Ultimately, the more information you know about your financial situation and budget, the easier it will be to make a clear decision that will be best for you and your family.
Our home refinancing journey
A few months ago, my husband and I refinanced our home. While this was an important decision for our family, I was surprised by how much this one decision has impacted our budget and finances moving forward.
First and foremost, our family has decided that this is the home we would like to be in for a long time. We knew that whatever closing costs we incurred, we would make up over time because we are here to stay.
Overall, we wanted to take advantage of these historically low rates. We also knew we wanted to pay our home off sooner. By switching from a 30-year mortgage to a 15-year mortgage, we shaved years off our term which will help us save money in interest.
When all is said and done, we will be saving over $100,000 in interest over the life of our home loan. While our monthly mortgage payment did increase, we are still saving a significant amount of money over the life of the loan.
The Bottom Line
Currently, interest rates for homes are low, so if you own your home you might want to consider refinancing your mortgage.
There are many benefits to refinancing your home, and Fannie Mae is making it easy for you to determine if this is the right step for you and your family. Learn more about refinancing your home with Fannie Mae’s resources and refinance calculator. You might be surprised at how much money you can save on your mortgage!
Have you decided to refinance your home, or do you have questions regarding the process? Let me know in the comments.