This seems to be the age-old question, but really depends on why you want to refinance. Whether that's taking cash out, shortening the term, changing mortgage types, or something else, there are a few things to consider when interest rates are expected to be on the rise.
Pro: A Small Decrease Makes a Big Difference
If mortgage rates go down after you closed your current mortgage, refinancing could reduce your monthly payments.
When it comes to mortgage rates, even a small change makes a difference. On a $300,000 30-year fixed rate mortgage, an interest rate of 0.50% lower means you'll save $30,000 or more over the life of the loan. However, remember that you pay a lot more interest at the beginning of your mortgage, and when you refinance, you're essentially starting over with a new mortgage.
When you're doing the math to see if refinancing is right for your financial situation, you'll need to factor in the cost of any interest you've already paid. If you do have a 30-year mortgage and only have seven years left, it may not be worth it to refinance because you've already paid most of the interest on your loan. Bankrate's amortization calculator will show you how much you could save at different interest rates and when your payments are most interest or mostly principal to help you decide if it's worth it to refinance.
Con: Changing Mortgage Rates
For the most part, mortgage interest rates are pretty stable, but over the years there have been times when even the experts weren't sure what would happen in the future, near or far. It can be tough to decide when to lock in the current interest rate, especially in an environment where rates are expected to drop or rise, and by how much. At the end of the day, you'll need to look at your mortgage's current interest rate and term, compare it to the one offered today, and make a decision from there. If interest rates continue to change, you'll still have the option to refinance again at a later date.
Pro: Switching to a Fixed Rate Mortgage
If you currently have an adjustable-rate mortgage (ARM), then you may want to consider refinancing to a fixed-rate mortgage. ARMs fluctuate monthly or annually after their fixed-rate period expires, although ARMs do have cap amounts (say, 2%) on how much they can increase or decrease, but having your payment change every month or year can be tough. Fixed-rate mortgages are not affected by fluctuating interest rates are a better option if you want your payment to remain predictable. Once you're approved and locked in a fixed-rate loan, then your interest rate will not change.
Con: Closing Costs and Other Fees
Closing costs and other loan fees are often included not just in new mortgages and other loan types, they're also part of refinancing. These extra costs include things like appraisals, title, escrow, and other fees that can add up quickly and should be taken into account to be sure you're still saving money. If you're looking for general numbers to give you an idea of what you might pay, closing costs on refinances are approximately $5,000 but the size of the loan amount and where you live play a role in how much you will pay. This sentence does not make sense so deleting it.
WaFd Bank is Here to Help
If you're thinking about refinancing, we're here for you! At WaFd Bank, we don't sell our loans, unlike most banks. Why does that matter? It means we'll never sell your home loan, and you'll always know who to go to with questions. Plus, if rates fall in a few years, you could lower the rate on your existing mortgage with us easily. We also offer QwikFi*, an alternative to a full rate and term mortgage refinance. It allows you to refinance once a year with no out-of-pocket expenses, so when rates decrease you may be able to lower the monthly payments on your home.
Talk to your friendly neighborhood loan officer about what might be right for you, we'll help you do the math! You can also give us a call at 800-324-9375 or visit your local branch to find out more.
All loans are subject to credit approval.
*Ask a WaFd Bank loan officer for specific details and eligibility requirements. The new rate must be at least 0.25% of the borrower's current interest rate. Loan to value must be 80% or less. Available for primary and second homes.
