The St. Mary's Blog

There are many reasons that homeowners refinance their mortgage, from lowering their interest rate to switching from a variable to fixed rate loan. But in times when mortgage rates are more attractive than one's original deal, is it really the best decision to refinance? Don't be too hasty -refinancing your mortgage isn't always the right choice, even when rates are low. Here, St. Mary's Credit Union, explains things to consider when making a decision about whether or when to refinance your mortgage.

How Much Will You Save?

Lower rates may mean bigger savings, but think before you act. We recommend doing the math to know whether you'll save money and if your savings will be worth it. For instance, if you refinance to a longer term loan, you might end up spending more money in the long run - even if monthly payments are lower. Likewise, refinancing to a shorter term might save you interest over time, but you'll be paying more monthly.

Also, keep in mind that refinancing will cost 2% to 5% in closing costs, equating to thousands of dollars. You'll want to figure out how long it'll take for the reduced interest to recover that cost. If you don't break even, then you won't be saving money.

Do You Qualify for a Refinance?

You've done the math and decided that a refinance would save you money. But do you qualify? If you're already swamped by your current mortgage, then the refinance might be more expensive or even impossible. Qualification for a mortgage refinance depends on the following factors:

• Your home's equity
• Your income
• Your credit score

If you have less than 20% equity in your home - that means less than a 20% difference between the value of your home and what you currently owe -your lender is likely to require costly mortgage insurance. And if your credit score is too low, you may not qualify for the refinance. But if you do, you may end up paying more on interest. Whatever the case, it might be worth holding back on the refinance until you've reduced your debt and raised your score.

How Long Will You Stay in Your Home?

Finally, while you may save money and qualify for a refinance, it may not be worth it if you don't plan on keeping your home. Refinancing might take a few months to complete, depending on your lender. Even after the refinancing is done, it might take anywhere from several months to several years for you to break even and start saving money.

Find Out More about Refinancing

If you're considering refinancing, we recommend consulting with your loan officer or mortgage broker. They can help you determine when you'll break even and whether the refinance is worth it.

Serving members across Massachusetts, St. Mary's Credit Union's knowledgeable team can offer advice on mortgage loans and refinancing. To find out more about refinancing your mortgage, contact us today.