When you’re in the process of paying off your home mortgage, it’s fairly easy to get into the routine of making the payment each month. But, there are a number of events such as a change in interest rates or if you need additional money for buying a second house, a car, or any other big purchase, that would require you to take a second look at how you can better use your mortgage as a financial instrument. This is where refinancing your mortgage comes in.

Refinancing means that you get a new mortgage to continue paying off your home. It can be a great option if you’re looking to make higher payments in order to own your home sooner, take advantage of lower interest rates to have a smaller monthly payment, or take advantage of payments you’ve already made and access to the equity in your home. When you’re considering refinancing, there are several things to think about, including understanding when the best time to make this change will be.

It’s great to know that refinancing is an option, but there are still so many questions to answer. How does it work? When can I refinance my house? Should I refinance my house now? What are some of the risks to consider? The questions rattling around in the back of your mind can be endless. But at Hickory Point Bank, we have you covered with the information and resources you’ll need to make this decision.

Why you may want to refinance

One essential reason you may want to refinance your home is to change your loan term to either accelerate or decelerate your loan payments. Depending on your financial situation and goals, you may want to switch to a longer or shorter term.

If you want to own your home sooner

Maybe you started out with a 30-year mortgage because it was nice to have a lower monthly payment. But now, you’re making more money and also realizing that you’re paying a large portion of your monthly payment in mortgage interest, and you feel confident in taking on a bigger monthly payment. In this case, it makes sense to switch to a 15-year mortgage so that you can pay higher payments, reduce your interest expense, and own your home sooner.

If you want to reduce the size of your monthly mortgage payment

Or maybe you’re in the exact opposite situation, where you were in a very strong financial position when you first purchased your house and started out with a 15-year mortgage which was great at the time since it would reduce your overall interest expense and could put you on a path to owning your home sooner. But things have changed. Maybe you or your spouse has decided to leave the workforce and stay home, or your kids have started college, and now you’re finding it more difficult to pay each month. This is when it may be a good time to refinance your 15-year mortgage to a 30-year mortgage to reduce the size of your loan payments on a monthly basis.

Alternatively, there are sometimes opportunities to take advantage of changing interest rates to decrease your monthly mortgage payment. For example, assuming 20% equity in your home, if you purchased a $300,000 home at a 6% interest rate, you would pay around $1,700 a month for your mortgage. If a few years down the road, you find that your bank can offer you a 4% interest rate, you can refinance at this new rate and your payment on the same loan value for the same house will only be around $1,400 a month. This is the power of using refinancing to adjust your monthly loan payments.

If you want to tap into your home equity to make a big purchase

Another reason for refinancing is if you want to tap into some of the equity you have in your home through a cash-out refinance. This means you will replace your loan with one of a higher value and take part of your equity out in cash. Say you started with a $300,000 mortgage and have $80,000 in equity, so there is $220,000 that you still owe. If you replace this loan with one for $250,000, you’ll receive the $30,000 difference in cash. Then you can use this money to  pay off debt, pay for a home renovation, buy another house, or put more money toward investing. Then you will continue to make monthly mortgage payments toward the balance of the loan.

If you want to switch from an adjustable-rate to fixed-rate mortgage

Finally, if you’ve had an adjustable-rate mortgage for a while and the interest rate has gotten too high, you may want to refinance and convert to a fixed-rate mortgage. You may have had a low interest rate at the start of the loan, but an adjustable-rate mortgage’s interest rate fluctuates based on the market. So you may reach a point where you want to lock in a certain interest rate, which you can do by switching to a fixed-rate mortgage.

What to consider before refinancing

So you’ve decided that you do want to refinance your home. Now what? Well, there are still several factors to consider before you go for it. First start by looking at how your finances are now, then think about what your goals are. The discrepancy between where you are, where you want to be, and the market interest rate for home loans can help you determine if refinancing will benefit you. Finding the best bank to refinance your house and talking to loan officers about your options can really help in your decision process.

You will thank yourself later if you take the time to research and use resources like calculators to help give you some perspective. At Hickory Point Bank, we have a few helpful tools on our Lending Calculators page. Under the “Mortgage Calculators” section you can find a calculator that will determine when you will break-even on your mortgage refinance, and one that will calculate how much interest you can save by refinancing. If you have any questions or concerns along the way, come visit with one of our trusted loan officers.

In Conclusion: when to refinance your home

Although you may have a great reason for wanting to refinance your home, is now a good time to do it? The answer will depend on your financial situation and what interest rates are looking like. Every homeowner has a unique situation, but there are a few time periods that are sure to work well with a mortgage refinance. But no matter what the situation is, it’s always best to consult a professional when you’re not sure if it’s the right time to make a move like refinancing.

Financial Goal	Option #1	Option #1 Considerations	Option #2	Option #2 considerations
Reduce your monthly payment	Refinance to a longer term	Will extend the length of time you have a loan on your house	Refinance to a lower interest rate	Market interest rates are not always lower than when you first purchased your house
Own your home faster	Refinance to a shorter term	Will increase your monthly payments
Fund a large purchase	Refinance to a shorter term	Will allow you to gain equity in your home faster	Refinance to a longer term	Will reduce your monthly payment, freeing up more money to save
Change your type of mortgage	Refinance to a fixed-rate mortgage	The interest rate will be steady and not change	Refinance to an adjustable-rate mortgage	Interest rates likely to be lower at first, and ideal for those who don’t plan on staying in the home for the life of the loan

 

Refinancing can be a great way to alleviate financial burden, own your home sooner, or tap into your cash now. Make sure you consider how refinancing will work for your situation and don’t hesitate to talk with professionals to get the right information. We know how important it is to find the best place to refinance your house. So come visit your local Hickory Point Bank branch and our loan officers will be happy to help guide you through the process. You can also apply online for a mortgage refinance here.