Refinancing can be a smart choice if you’re trying to lower your monthly payments or reduce the overall interest on your loan. A refinance could possibly save you thousands of dollars each year in interest. Not to mention, experts predict that the Federal Funds interest rate will rise 1.40% by the end of 2017, meaning the time to refinance your higher rate loans is now! But, before you rush to lock in a lower rate, consider the following to help you decide whether it makes sense for you to refinance.
Consider your credit score first
Whether you are considering refinancing your mortgage, auto loan or student loan, there is definitely one thing you need to have, and that’s good credit. If your score is below 620, then you may have a harder time finding that lower rate you’re looking for. For instance, mortgage rates typically run on a sliding scale, which means applicants that have a good score of 720 or higher will receive the best rates. So make sure you know where your credit stands before inquiring any further about a refinance.
You can check your credit report for free here.
Assess your current terms, beginning with your mortgage
You may choose to refinance your mortgage in order to lower your monthly payments. This can be done by either extending your loan terms (how many years you will be making payments) or lowering your overall interest rate.
Consider this example- if you’re a homeowner who needs a little “wiggle room” each month, then refinancing from a 15-year mortgage to a 30-year mortgage will lower your monthly payment. However, be aware, the longer the term, the more interest you will be charged over the course of the loan.
On the other hand, if you’re a homeowner who has more disposable income, you might consider refinancing from a 30-year mortgage to a 15-year mortgage. You may increase your monthly payments, but you’ll save money because you will pay off your mortgage much faster and pay less interest over the life of the loan. You may also want to refinance from a 30-year to a 15-year mortgage if you’ve built up enough equity to refinance and reduce your loan term.
Refinancing your auto loan can lead to simple savings
What about refinancing your auto loan? Again, depending on your financial situation, it might be worth it, especially if interest rates have dropped a few points or if your credit score has improved since the time you bought the car. Like a mortgage, you can apply for a different loan with lower monthly payments, reduced rates or different loan term. The application process is much easier than refinancing a mortgage.
Don’t forget, refinancing is essentially replacing your current mortgage or loan with a new one with a a more favorable rate or timeframe, which means your loan term starts over. But if you have good credit and your financial situation can benefit from it, then refinancing might be worth its weight in gold, no matter the length of the loan term. Ultimately, it’s up to you to decide what’s best for you.
Interested in discussing your refinance options? Sandia Area can help. Give us a call today at 505-292-6343 ext. 5 or stop by any neighborhood office. You can also find more information by visiting our Move Your Money Page.
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