In the current market, if you can refinance, you probably should be. Refinancing is the process of obtaining a new loan that pays off your existing home loan. There are several reasons for wanting to do this, but the most important is to get a lower interest rate so you save money on your home loan. FHA loans can help you to refinance, as can other conventional lenders. The key here is to know when it makes sense to refinancing.
What’s Your Rate?
The first step in knowing if it makes sense to refinance is to know what your interest rate currently is. According to Bankrate.com, current 30-year mortgages are available at about 5 percent, which is a very low number. Those who wish to obtain a 15-year loan may even be able to pick up a home loan that is under five percent. If your current mortgage is at an interest rate that is higher than this, you could save money by refinancing.
Here is an example. Let us say you currently have a mortgage loan payment of $1400 per month and you owe $175,000 on your home and have another 28 years to pay on it. You are currently paying about 9 percent for the mortgage. If you keep this loan for the next 28 years, you will end up paying a total of $304,984 in interest alone, on top of the purchase price of the home.
Now, let us say you refinancing your home loan to a loan for 30 more years and pay 5.5 percent on the loan. Your mortgage payment is now under $1000 a month. At the end of your payments, you will have paid just $182,707 in interest payments towards the loan. As you can see, this is much more affordable than holding onto the loan you currently own.
You will likely need to pay closing costs and your homes appraised value still needs to be high enough to cover the mortgaged amount to qualify for a refinance. There are other qualifications you may need to make, too.
To find out if this is an option for you, get a quote from a lender. You may even qualify for an FHA loan through the refinance process. This can further lower your interest rate and make it even more affordable to buy your home.