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When and Why You Should Refinance Your Home

Why should I refinance my mortgage?

Refinancing allows you to change the terms of the mortgage to make either lower monthly payments and free up cash or switch to a shorter-term mortgage to enjoy lower interest rates and pay off your mortgage sooner.

When should I refinance my mortgage?

The refinance game always seems like a bit of a gamble - will rates go up or down and when? Am I eligible to refinance? What is the current value of my home? How is my credit score? Fortunately, by taking stock of your finances and asking a few key questions, you can be better equipped to decide when the time is right for your current situation AND your future finances.

Traditionally, low interest rates are what tempt people to refinance their homes. Refinancing can result in a reduced monthly payment and free up cash for other expenses like paying off additional debt, purchasing another property or financing a remodel. The traditional rule of thumb says to refinance if the rate is 1% to 2% below your current rate. Make sure to factor in your current loan term when considering to refinance.

But be careful and look beyond the smaller payment amount. Often, people are so focused on the interest rate or lower monthly payment that they forget to consider that when you refinance, you start over with a new loan. With any mortgage, the goal is to increase the equity in your home, and ultimately own it free and clear. When you refinance, you may be increasing the amount of time it will take you to own your home and it can ultimately increase the total amount you'll pay in interest over your lifetime.

Make sure you speak with a trusted financial advisor to ensure that refinancing is the best option.

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What is better, a 15-year or 30-year fixed-rate mortgage?

Fifteen-year mortgages generally come with a lower interest rate than a 30-year loan as its paid over a shorter period. This can help save quite a bit of money in interest, but the payments will likely be significantly higher, and it can restrict financial flexibility when money is tight. If your income is higher and budget allows, you could save money on a 15-year mortgage. However, if you're unsure how much longer your income will be higher (i.e. if you're planning on retiring soon), then you may want to consider just making additional mortgage payment(s), versus refinancing.

The 30-year fixed-rate mortgage is by far the most popular as it offers piece of mind with predictable payments but gives you the flexibility to pay it off faster by adding to the monthly payment when you can.

Curious to what your refinance might look like or view current interest rates? Try out a refinance loan calculator and see the difference yourself between 30 and 15-year options.

Check with your current mortgage lender

Some banks offer special rates for current borrowers. If your mortgage is currently with WaFd Bank, refinancing with us may be a sound option. Since we don't sell your loan, you can take advantage of our Qwik Fi program to lower your interest rate in the future without going through an entire refinance process. This will save you time and money. Also ask about our minimal or zero closing cost refinance and modification options.

Bottom Line: In the end, look at your finances and talk with a mortgage specialist or lending advisor to see what's right for your budget in the current economic market. Whatever your decision, know your options and make sure you can easily make your mortgage payments on time each month to preserve your credit score and future home ownership.

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