It’s true that interest rates on mortgages are increasing, but it could still be a good time to refinance. As with so many things in life, it all depends on your unique financial situation.
If you’re thinking of refinancing, there are two major types available: rate-and-term and cash-out.
In rate-and-term refinancing, borrowers are looking to save money by taking the remaining balance of the original mortgage and refinancing it at a lower rate and an affordable loan term. This type of refinancing often yields a lower monthly payment resulting in more spare cash flow which can be used in many ways, including building savings. BBVA Compass offers more information on rate-and-term refinancing here.
Cash-out refinancing occurs when borrowers refinance for more than they owe. The additional amount financed is delivered to the borrowers at closing and can then used for a variety of reasons, such as funding home improvements, paying off other debt, or another financial need. More information on cash-out refinancing can be found here.
Once you’ve decided what type of refinancing is right for your unique situation, knowing your break-even point is a key next step in determining if it makes financial sense to refinance. Your break-even point is the point at which the monthly savings created by the refinance offsets the cost of refinancing.
For example, a new mortgage will typically include another round of closing costs and fees. To determine the break-even point, simply divide total closing costs by how much you’ll save each month. The number you get is how many months it will take you to reach break-even. If you do not plan to stay at your home for longer than the break-even point, refinancing may not be the right option.
To help you determine whether refinancing is a good financial move, BBVA Compass offers a mortgage refinance calculator.
For more on refinancing, BBVA Compass offers “Is Now the Time to Refinance” on its MoneyFit blog.
Finally, to see a range of mortgage options from BBVA Compass for the full spectrum of homebuyers, including new construction loans, click here.
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