Owning your own home can be both incredibly rewarding and challenging. It can be your largest investment and your single biggest expense. And like any large investment, there are times when you find yourself asking whether you're making the right decision. Questioning whether you should refinance your home can be one of those important moments.
Refinancing your loan to a lower interest rate could reduce your monthly payments, shorten the amount of time you have left on your home loan, or save you thousands of dollars. That said, it's important to note that refinancing does cost some money.
How Much Will a Refinance Cost?
When you refinance your home, you might end up paying broker fees, closing costs, and a few others. A typical refinance will cost anywhere between 3-6% of the loan's principal. While that might seem like a lot, there are some really good reasons a refinance can work in your favor, along with some things to really consider before you do.
At One Nevada, we make it easy and more affordable to Refinance your home by charging a flat fee of $562.00. While that doesn't include 3rd party fees, it can save you a lot of money.
The Top Four Reasons to Consider Refinancing:
- To take advantage of lower interest rates: Many lenders claim that even a 1% reduction on your interest rate can be reason enough to refinance. Reducing your interest rate can help you build more equity in your home sooner and decrease the size of your monthly payment, saving you a lot of money.
However, if you don't plan on living in your home for much longer, refinancing might not be cost effective. Before you refinance, add up all the costs of completing the loan and then divide that number by the amount you would save every month on the mortgage if you refinance. That will tell you how long you'd need to stay in the home to break even on your refinance costs.
- To access cash: If you refinance your home and tap into it's equity, it's called cash-out refinancing. This can be a great option, especially if you use that money to increase the equity in your home. Installing a new roof, windows or doors; remodeling the kitchen or master bathroom; and even updating your patio or deck can add value (equity) to your home. It also makes your home more livable. That's a win-win in our opinion.
If you plan to use the cash (equity) to pay off higher interest debt, such as a credit card balance or student loan, this is where we urge careful consideration. We're all about you paying down debt, but it's important that you be thoughtful about future spending and avoid racking up those credit card balances again.
- To shorten the life of your loan: If you have a mortgage with a long loan term, for instance 30 years, refinancing with a lower term but at a lower rate, could help you pay off your loan sooner without changing the monthly payment much. Just be sure you do the math carefully to ensure you can still afford the payment.
- To convert between adjustable-rate and fixed-rate mortgages: Over time, market rate adjustments can increase the rates on Adjustable Rate Mortgages (ARMs) until they top the going rate for fixed-rate mortgages. When this happens, switching to a fixed-rate mortgage can be a good idea. Again, it's all about doing the math.
Is a Refinance Right for You? First consider if you're doing it for a good reason. Will it benefit your family's financial well-being? If you're extending your term another 10 or 20 years just to lower your monthly payment, be careful. Any money you save on lower payments will be lost in the cost of the refinance and the extra years of interest you'll be paying on your mortgage.
Second, get a good faith estimate from several lenders. Take special note of the interest rate and loan price for each estimate. Divide this price by the amount you'll save each month with your new rate. This is the number of months it will take for you to break even on the new loan.
One Nevada Tip: To get an accurate estimate from any lender, be sure you have proof of income for the past two years and a recent paystub or retirement award letter. You'll also need two years of tax returns and W2s.
Boost Your Financial Knowhow
When you have questions about refinancing your home loan, One Nevada is here to provide the answers – and the math. Just give us a call at:
Las Vegas Area: 702 382-4094
Reno/Sparks: 775 827-3880 x4643