Over the last two years, many homeowners have taken advantage of historically-low interest rates to refinance their mortgages. They have realized significant monthly savings by doing so, with many lowering their monthly payment and some even reducing the number of years they have to pay.
Even with interest rates rising in recent months, there are still plenty of homeowners who could benefit from refinancing their mortgage. The average APR on a 30-year fixed rate mortgage is 4.23% for a refinance, according to Wells Fargo.
Even though that’s much higher than the average rate of 2.90% in September of last year, plenty of homeowners could still benefit from a refinance. If you originated your mortgage in 2007, for instance, you might have an interest rate of 6% or more, providing plenty of room for monthly savings.
If you’re considering a mortgage refinance in Michigan, here are three things to consider.
1. Understand Your Options
As a matter of policy, you should understand exactly what you want to get out of a mortgage refinance. That’s because there are different types of refinancing programs you can take advantage of.
Are you simply looking to lower your monthly payment? If so, make sure that the amount of money you’ll save on a monthly basis will offset the amount you have to pay in closing costs. While closing costs of a refinance are typically much less than a new mortgage, it’s still a cost factor to take into consideration.
Long-term, you should also consider how many more years you’ll be paying your mortgage off. If you’ve already paid off seven years of your current mortgage but then refinance, you’ll basically be starting over at year one. Is the monthly savings now worth the extra years of payments?
Shorten the Mortgage
It’s also possible you could shorten the number of years left on your mortgage through a refinance. For example, you can choose a 15-year fixed rate mortgage for your refi.
While the monthly payment of a 15-year mortgage is going to be more expensive than a 30-year mortgage, you could actually save money — or pay the same as you are now per month — depending on how much you save with your new interest rate.
This angle may not save you money now, but it could save you a significant amount of money in the long run.
You can also use a mortgage refinance to cash out some of the equity you’ve built in your home. Over the last two years, average home prices have increased substantially, providing many homeowners with extra equity.
With a refinance, you have the opportunity to take cash out of your home to use for other things. If your current mortgage is for $200,000, but your home’s new value is $300,000, you might be able to get a new mortgage for up to $240,000 — which is 80% of your home’s new value.
The difference between your new refinanced mortgage and how much you owe on your current mortgage gets paid to you in cash. So, if you opt for a $240,000 refinanced mortgage and you owe $180,000 on your current mortgage, you could cash out $60,000.
Your monthly payment might go up based on the extra amount of your refinanced mortgage. However, it could be well worth it if the cash-out allows you to pay off higher-interest debt, do home renovation projects, send a child to college, or even just enjoy a nice vacation.
2. Be Realistic
An important tip is to be realistic about your refinancing prospects. Whether a refinance would be beneficial to you depends on three main factors — your credit score, your current mortgage details, and your home’s current value.
Step one is to know what your credit score is and have a general idea of what interest rate you could qualify for. Then, compare that potential interest rate to your current interest rate to see how much you might be able to save per month. Finally, understand your home’s current value to see if you’d have a good opportunity for a cash-out.
With all this information in hand, you’ll be better prepared to know whether it’s even worth your time to apply.
3. Prepare Your Home
To get the best-refinanced mortgage, you’ll want your home to be appraised for as much as possible. The higher your home appraises, the more equity you’ll have in your home.
Unlike when you’re purchasing a new home, you’ll have direct control over the value of your home. You can make easy upgrades to your home before an official appraisal is done to potentially increase its value.
Some projects you could take on include re-painting rooms and upgrading the curb appeal of your home with simple landscaping projects. Even if you can’t take on any major home renovations prior to the appraisal, simply cleaning your home from top to bottom, inside and out, can increase the amount your home appraises for.
Protect Your Asset with a Trusted Insurance Company
These are just three tips that every homeowner should follow when they are considering refinancing their mortgage in Michigan. There are many potential benefits to refinancing, even as average mortgage rates are increasing.
Once you have made the decision to refinance your mortgage, it’s important that you protect what is likely to be your biggest asset. You can do that by working with a trusted company that can provide you with the best homeowners insurance.
At Signature Insurance, we have been protecting homeowners just like you for years. Our agents are well-versed and experienced in all aspects of homeowners insurance, and can help you navigate the sometimes confusing world of insurance.
Contact us today to find out more about us and to get a free home insurance quote.
Get insurance today!
At Signature Insurance we want to help you understand your insurance coverage options so you make the best decision.
Contact us at (586) 274-9600 and we’ll be happy to get quote for you from many of the top auto insurance companies or home insurance companies in Metro Detroit.