Smart Refinancing: 4 Ways to Save Money with Your Mortgage
When most people think about refinancing to save money the first thing they often think about is getting a lower interest rate. Though refinancing into a lower interest rate is a great way to save money both upfront & in the long run, there are also other ways you can save money by refinancing.
1. Lower Your Interest Rate
Lowering your interest rate is a sure fire way to save money on your mortgage. Paying less interest each month & over your loan term is a no brainer. Especially when paired with one of these other ways to save money with your mortgage.
The Key things to think about when deciding on your new rate:
- Monthly & long term savings vs. the cost to refinance.
- How your savings will compare between rates.
2. Remove Mortgage Insurance (MI)
Mortgage insurance is paid each month on loans requiring it, costing borrowers an average of $166 per month. Depending on your mortgage type you may be eligible to remove it when you refinance. This is often forgotten about by home owners & can save you a good chunk of money each month.
When can you remove your MI on a Conventional Loan?
Once you have 20% or more equity in your home, determined by an appraisal or AVM (automated valuation model).
On average homes in the US appreciate by 5% each year, which means if you put 5% down when you purchased your home and have owned it for 3 years, you might have 20% equity or more.
Since 2020 homes in some markets have seen much higher appreciation rates, you might have more equity than you realize.
When can you remove your MI on a FHA Loan?
The Federal Housing Administration (FHA) treats Mortgage insurance a little differently. Instead of it being based on equity, MI can only be removed on an FHA loan after you’ve owned the home for 11 years.
But that doesn’t mean you have to wait 11 years to save money. When you refinance you are not required to have the same loan type you used to purchase. If you qualify & have 20% equity you can refinance into a Conventional Loan with no MI.
3. Change Your Loan Term
When you refinance your mortgage you can choose a loan term that best fits your current needs, even if it’s different from what you started with. This can help you save money in the short or long term depending on your needs.
We are one of the few lenders that offers Flex Terms, letting you choose a loan term between 8-30 years if you qualify.
Longer Loan Term = Short Term Savings:
Whether you’re sending a kid to college, have another on the way or just want to pay less each month, consider extending your loan term.
Example: If you have 20 years left on your mortgage and refinance back to a 30 year term; your remaining balance will be spread out by another 10 years reducing your payment each month but increasing the amount of interest you pay in the long term or until you refinance again.
Shorter Loan Term = Long Term Savings:
Are you okay with paying more each month to increase your long term savings? Consider refinancing to a shorter loan term.
Example: If you currently have a 30 year mortgage and refinance to a 20 year term; Your monthly payments will be higher each month but you’ll avoid paying an additional 10 years of interest. Which means paying more principal each month & less interest in the total length of your loan.
4. Consolidate Debt With Equity
With the rise of high interest debt including credit cards over the past 2 years, consolidation of debt through mortgage refinancing has become a popular way to significantly reduce your total liability payments each month. Not to mention saving thousands of dollars in interest.
How does it work?
Homeowners who qualify can utilize a cash out refinance in which you receive a portion of your equity in cash at closing. This cash then then used to pay off the high interest or high payment debt of your choosing reducing your total monthly payments. We can also do this for you right at the closing table, saving you time and effort.
The great thing is; because mortgage terms are often significantly longer than other high interest debt the impact to your mortgage payment can be minimal compared to the other payments saving you hundreds of dollars each month.
Pro Tips for Successful Refinancing
- Review your current long & short term financial goals & plan ahead
- Consider the total cost of refinancing compared to your total savings
- Consult with a mortgage professional like us
Refinancing can be a powerful tool to improve your financial health. With our innovative technologies and flexible options, you can create a mortgage strategy that saves you money and meets your unique needs.
Ready to explore your refinancing options? Reach out any time and we’ll help you start your journey to potential savings!
Mortgages can be confusing which is why we’re here to help find a solution tailored to you and provide 24/7 support for all of your financing needs.
Reach out to us any time to learn more about our loan options, We’re always available & here to provide expert guidance and support for you!
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