Is Now the Right Time to Refinance Your Mortgage?

By Chris Boland, Vice President Consumer Lending Manager, North Shore Bank

01/02/2020

For most people, their biggest asset and biggest financial responsibility is their home loan. As such, it’s critical to periodically revisit your mortgage financing and consider whether there are any options that will save you money or deliver other benefits. Interest rates always rise and fall, loan programs change and your personal financial situation evolves over time, too. The mortgage lending professionals at North Shore Bank can help you explore your options to see if the time is right to refinance.
 
One of the most common reasons people refinance is to take advantage when interest rates dip. Even a quarter or half of a percentage point can make a big difference over the life of a home loan. Consider that with a 30-year mortgage of $250,000 and a 5% interest rate you’d pay $233,000 in total interest over the life of the loan. Drop that interest rate to 4.5% and your total interest paid is $206,000. That adds up to nearly $1,000 that you keep in your pocket each year.
 
In addition, when there is an opportunity to significantly reduce the interest rate on a mortgage, homeowners might find themselves in a position to reduce their mortgage to a shorter term, such as going from a 30-year to a 15-year term, without significantly increasing their monthly payments. Depending on your situation and your financial goals, this type of scenario can be a great incentive to refinance.

Should You Refinance Your Loan?
For homeowners who currently have an adjustable-rate loan (ARM), an opportunity to get into a fixed-rate loan is typically a high priority. A fixed-rate loan means predictable monthly payments, no stress over spikes in interest rates and – depending on the market – it may only mean a slight increase to your current rate. On the flip side, if you are unsatisfied with the terms of a fixed-rate loan or are looking to capitalize on lower interest rates, moving from a fixed rate to an ARM can provide an opportunity to capture that lower rate and move to lower monthly payments. It’s important to always factor in that when interest rates rise, your rate may rise as well. ARMs are also excellent financial vehicles when you plan to move in seven years or less. In this scenario the ARM allows you to take advantage of lower rates with little to no interest rate risk.

ARMs also have built in protections that you’ll need to understand to make the best decision.
 
While most refinancing scenarios are an attempt to improve both your monthly commitment and your long-term financial situation, there are other factors that may come into play that warrant consideration. For example, if you’ve built equity in your home it may make sense for you to refinance to pay for a major home improvement project. Tapping to accumulated equity can also, for some, be a prudent way to consolidate other debts – especially high-interest debts.
 
There are potential risks and a variety of considerations in any refinancing scenario, so it is always advised to seek advice and guidance from a trusted mortgage lending partner. Get in touch with us today to see what options might be available. We are always happy to help you find the path that’s best to meet your unique needs and goals.

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