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? What should I consider before I refinance? Fortunately, by taking stock of your finances and considering a few key factors, you can be better equipped to decide when the time is right for your current situation and future finances.
Traditionally, low interest rates are what tempt people to refinance their homes. Refinancing can result in a lower monthly payment, and free up cash for other expenses like paying off additional debt, purchasing another property, or paying for repairs or a remodel. The traditional rule of thumb says to refinance if interest rates are 1-2% below your current rate. That being said, make sure to factor in your current loan term when considering a refinance as your interest rate is not the only thing to keep in mind when making this decision.
What happens when you refinance your home
Refinancing allows you to choose a new mortgage type and term. You can take out another 30-year mortgage to make lower monthly payments and free up cash or switch to a shorter-term like a 15-year mortgage to enjoy lower interest rates and pay off your mortgage sooner. Before making any permanent decisions, look beyond a potentially smaller payment amount. Often, people are so focused on the lower interest rate or 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 might be increasing the amount of time it will take you to own your home and you'll ultimately end up paying more in interest over the life of the new loan.
Make sure you speak with a trusted financial advisor to ensure that refinancing is the best option for you and help you do the math to find out. If you're on the lookout for some help, our friendly loan officers at WaFd Bank are up to this task and, fortunately, will do the math for you so you can compare numbers to make the right decision for yourself and your family.
When is it worth it to refinance
This is a tough question to answer, as it really depends on your specific situation and future plans. First and foremost, always do the math to see if refinancing would save or cost you money. WaFd Bank offers a mortgage refinance calculator so you can plug in different numbers to get an idea of payments and how much might be going to interest every month. If you want to do a remodel or need cash for another reason, you might be thinking about a cash out refinance to fund your project, but consider a home equity line of credit, or HELOC, instead. Remember that when you refinance, you're essentially starting over with a new mortgage at a new term and interest rate. If you plan to move in a year or two, it wouldn't make sense to refinance, but if this is the house for you or you don't plan on moving for several years, doing the math is worth it to see if this is the right option for you.
How to refinance a house
A 15-year mortgage generally come with a lower interest rate than a 30-year as it's 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 peace 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 about what your refinance might look like or want to view current interest rates? Try out our refinance loan calculator and see the difference 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 QwikFi program to lower your interest rate in the future without going through a full refinance process, which can be lengthy. This will save you time and money. While you're at it, 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.
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.
All loans subject to credit approval.
*Ask a WaFd Bank loan officer for specific details and eligibility requirements. To get a Qwikfi the rate must be .25% lower than the rate the borrower is currently paying. Loan to value must be 80% or less. Available for primary and second homes.