Rates are Low. Should You Refinance Your Mortgage?

By Dwayne Holt, Mortgage Lending Director

Mortgage rates are low, which means it’s a great time to consider refinancing your mortgage. But there’s more to refinancing than low rates. Whether it’s right for you depends on your goals, how long you’ve been in your home and how long you plan to stay there. Here are some tips to help you decide if refinancing is right for you.

Know your mortgage goals

If you’re thinking about refinancing your mortgage, first know what you want to accomplish. There are several benefits to refinancing, but the benefits depend on your goals.

Goal 1: Save money on monthly payments.

Freeing up a little cash in your monthly budget is a popular reason to refinance. Of course, the bigger the difference in your current and new rate, the more you’ll save.

If your goal is to lower your monthly payment — and save money over the life of your loan — now may be an excellent time to refinance. It might even help you build equity in your home faster.

Here’s an example of how “Jeff” is saving by refinancing his mortgage.

Original loan:

In 2010, Jeff took out a $200,000, 30-year mortgage. His interest rate was 4.75%.

Refinanced loan:

Jeff refinanced in 2020 for 20-years (so he won’t pay any longer than the original term). His high credit score earned him a new interest rate of 2.75%.

Savings:

• $166 per month on payments
• $24,081 in interest over the life of the loan

Use this mortgage calculator to estimate how much you could lower your monthly payments.

Goal 2: Shorten the life of your loan for long-term savings.

Want to save money over the long term and speed your way to debt-free living? You might want to refinance to shorten your loan terms. Low interest rates make this a great time to take advantage of the savings.

If you refinance from a 30-year mortgage to a 15- or 20-year mortgage, your monthly payments might go up. However, you’ll save on interest over the life of your loan — and be mortgage-free years ahead of your original schedule.

In this example, “Maria” is considering the following refinancing options.

Original loan:

In 2015, Maria took out a $200,000, 30-year mortgage. Her interest rate was 3.9%.

Refinance option 1:

If Maria refinances in 2020, moving to a 20-year mortgage at a 2.75% interest rate, her monthly payment increases by $38.

Savings:

• $17,567 in interest over loan period
• 5 years of mortgage payments

Refinance option 2:

If Maria refinances in 2020, moving to a 15-year mortgage at a 2.625% interest rate, her monthly payments increase by $274.

Savings:

• $23,675 in interest over the life of the loan
• 10 years of mortgage payments

See how your savings could add up with a shorter loan term.

Goal 3: Change your mortgage type.

You could refinance to move from an adjustable rate mortgage (ARM) to a fixed mortgage or vice versa.

• The benefit of an ARM is that it lets you take advantage of falling interest rates without refinancing in the future. You pay a fixed rate for a set time. Then your rate adjusts periodically with the current index value. This might be right for you if you plan to sell your home in a few years.
• The benefit of a fixed-rate mortgage is that it lets you lock in a rate for the whole loan term. You have more consistent payments so you can plan your budget. This might be right for you if you plan on staying in your home more than five years.

Three reasons not to refinance

As many benefits as there are to refinancing your mortgage, the time might not be right for you. You might hold off on refinancing if:

• You’re planning on moving.
  It might not be worth refinancing if you’re moving in the next few years. It can take time to recoup closing costs and get the full benefit of your savings.
• Your credit score needs a boost.
  Your credit score is a key factor in determining your mortgage rate. If your credit score isn’t in great shape, you won’t get the best rates. Learn how to improve your credit score before you consider refinancing.
• You’d have to “reset the clock” to see monthly savings.
  Let’s say you took out a 30-year mortgage and have been paying on it for seven years. There’s a good chance you’ve paid more interest than principal. If you would have to refinance with a new 30-year loan to see a monthly savings, you’d wind up paying more in the long run. Unless it’s an urgent need to extend your terms, you might want to wait until you’re in a better position.

Ready to refi? Start here.

If you want to talk about the options for refinancing your mortgage, it’s easy to get started with Cinfed. You can apply online or print an application to complete. Of course, you’re always welcome to call or visit your local Cinfed branch. A financial coach or team member will be happy to answer questions or get you started.

Here’s what to expect if you visit in person.

1. 80% maximum loan-to-value (LTV) with no cash-out. APR assumption based upon $100,000 loan amount. Rates subject to change. As Low As Rates based upon LTV. Loan amounts up to $510,400; avoid PMI with LTV of 80% or less. 80/10 financing available.

2. No points. Only 10% down payment required. 90% financing. Adjustment Period Cap: 2%. Cap over term of loan: 6%. Up to 30-year term. Rates adjust after 7 years, then each year thereafter. Actual rate depends on loan to value (LTV). Must meet First Time Homebuyer qualifications.

3. Rates adjust after the first 1, 3, 5 or 7 years dependent on type of ARM, and each year thereafter. Actual rate depends on LTV (loan to value). Up to 85% financing. Adjustment period cap: 2%. Cap over term of loan: 6%. Avoid PMI with LTV of 80% or less. 30-year amortization. Jumbo Loans over $484,350 add 0.500% to the corresponding As Low As Rate.