Should I Refinance My Mortgage in 2024?

As of May 2024, the median APR on a 30-year fixed refinance is 7.27%, and 6.88% on a 15-year fixed refinance. Refinance is a good option if your ongoing mortgage rate is above these rates.

Refinance replaces your existing mortgage with a new one. The new mortgage will have a new interest rate and loan terms. Refinancing empowers homeowners with financial flexibility and relief from high monthly mortgage payments.

As a homeowner, factor in the impact of refinance on your finances. Calculate the potential risks involved as you shop for lenders. Start here! Refi your mortgage online.

How Does Mortgage Refinance Work?

Mortgage refinance essentially means switching to a new loan. You pay off your existing mortgage with a new mortgage. Here’s a stepwise guide for you on how a mortgage refinance works:

1. Choose the most suitable type of refinance.
2. Shop for lenders with the most affordable interest rates.
3. Provide the necessary financial documents.
4. Do a home appraisal.
5. The lender begins the underwriting process.
6. Pay the closing costs and close on the mortgage.

When Should I Refinance?

As a homeowner, you can save thousands of dollars by opting for a mortgage refinance. Here are scenarios when mortgage refinance can be a perfect call:

• Drop in Interest Rates: A decline in mortgage rates is the most common reason to refinance. It reduces your monthly mortgage payments and saves money over the life of the loan.
• You Have a Longer Loan Duration: Refinancing from a longer-term mortgage to a shorter one can help you build equity faster.
• You Wish to Change Interest Rate Terms: Refinancing from an ARM to a FRM provides stability and protection against future interest rate increases.
• Increase in Your Home Equity: You tap into your home’s equity through refinance. It allows you to borrow against the value of your home.
• You Want to Remove Mortgage Insurance: Refinancing can be an option to eliminate PMI (Private Mortgage Insurance) if your home equity has increased since you first obtained the loan.
• You Want to Pay Off Debts: Refinancing can be a way to consolidate high-interest debt, such as credit card debt or personal loans.

How Much Does It Cost to Refinance a Mortgage?

Mortgage refinancing costs 2% to 6% of the total loan amount. The exact cost will depend upon factors such as the loan size, credit score, and the new loan terms.

Here’s a list of closing costs on mortgage refinance:

1. Application fee.
2. Origination fee.
3. Credit check fee.
4. Home appraisal fee.
5. Title search and insurance fee.
6. Attorney fee.

When Not to Refinance Your Mortgage?

Though mortgage refinancing offers multiple benefits, it may not always be a fruitful option. In some scenarios, refinance can badly affect your finances.

Here’s when you should avoid mortgage refinancing:

1. Refinancing has associated costs, so you should avoid it when you can’t afford it. These costs amount to 2% to 6% of the total loan amount.
2. You should avoid refinancing if there has been a recent decline in your credit score. A lower credit score will result in higher interest rates on your mortgage refinance.
3. You should avoid refinancing if your current loan plan has a prepayment penalty. Generally, a penalty amount is attached if you prepay your loan within 3-5 years.

Bottom Line

Mortgage refinance helps homeowners tap into their equity and gain financial flexibility. The most suitable time to refinance is when the interest rates are dropping. Refinancing at lower interest rates also means lower monthly payments.

Calculate all the associated costs and determine whether the new rates and terms fit your budget. At last, it’s equally important to research and choose the most suitable lender.

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