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Five Ways to Tell if it’s Time to Refinance

There are many reasons people refinance their mortgage, from saving money on their monthly payments to reducing interest rates.

If you’re thinking about refinancing your home, here are five ways to tell it’s a smart move:

1. Your interest rate is higher than the current rates.
One of the main reasons people refinance is to lower their interest rate, and for good reason—even a tiny percentage can make a huge difference in your monthly payment.

2. You qualify for a better rate.
If you initially got your mortgage when your credit score didn’t allow for the best interest rate, consider refinancing if your financial situation has improved. The overall cost of the loan, in addition to your monthly payment, will decrease substantially.

3. You’re still paying PMI.
When you put less than 20% down on your home, most lenders require you to pay private mortgage insurance (PMI). This amount is rolled into your monthly payment and can be very costly. Refinancing into a traditional mortgage can remove your PMI. If you have an FHA loan, recent cuts to mortgage insurance premiums– or MIPs– mean that refinancing your old FHA into a new one can significantly lower your mortgage insurance premium that you pay monthly, saving you hundreds of dollars per year or more.

4. You have a risky loan.
When an adjustable rate mortgage (ARM), your interest rate adjusts at specific intervals. Depending on the market, this can cause your payment to decrease, or it can cause it to skyrocket. Refinancing into a fixed-rate mortgage eliminates this risk.

5. You want to tap into your home’s equity.
If you have equity in your home, you can take advantage of it through a cash-out refinance. Use the equity to pay off bills, remodel your home, or pay for an education.

Refinancing Options

The most common refinancing options include:

Straight refinancing. This type of refinancing is used to lower your interest rate or payment amount. The process is very similar to when you purchased your home and includes an application, appraisal, and closing.

Cash-out. If you want to use your home’s equity, you can refinance your mortgage into a new loan that is greater than the balance of your previous mortgage. The bank then issues a check for the difference.

Streamline. If you have a FHA, VHA, or USDA loan, streamline refinancing doesn’t require an appraisal or credit or income verification. Because there is no appraisal, loan-to-value (LTV), which compares your home’s value to your loan, is not used in a streamline refinance.

With current low interest rates, refinancing your mortgage can be a great way to save money. To learn more about refinancing, or to see if now might be the right time for you to do so, call NLC Loans toll-free at 1-877-480-8050 or submit a contact request and we’ll call you.