Is it time to refinance your home?



By Evan Westlake
Vice President
Commercial Lending
NMLS#662918Newly painted and stained exterior of modern home during summert

My wife and I purchased our home last July – a new two-story, four-bedroom house for our growing family – so I definitely didn’t think that I’d be giving our mortgage loan officer a call again so soon.

But when I saw interest rates had dropped, I calculated some numbers and realized we could save more than $50 a month, as well as thousands of dollars over the life of our 30-year loan.

So we decided to refinance.

Saving money when interest rates go down is probably the number one reason people decide to refinance their mortgages, especially as interest rates have been so low in the last six years. Bank fees for refinancing are also reasonable, so, as with our family, you could save a significant amount of money by refinancing.

Aside from lower monthly mortgage payments, you may choose to refinance because you want to make home improvements, pay for a college education, or even make another purchase like a car.  If you have built up some equity in your home, you can refinance to use that equity to pay for a remodeling project or college tuition. This may be a better option than taking out a second mortgage as second mortgages often aren’t at a fixed interest rate.

Another reason to refinance might be to drop private mortgage insurance, or PMI.  PMI is typically required by lenders if you borrow more than 80 percent of your new home’s value or, put another way, you have less than 20 percent of the down payment.   If your home has increased in value and your mortgage is now at or under 80% loan to value, you could save the cost of private mortgage insurance by refinancing.

The main concern many people have about refinancing is paying the closing costs, according to Aaron Sapp, vice president of residential mortgage here at INB.

“I typically like to show our clients how long it will take to make up the closing costs associated with refinancing.  In most cases it is a short period of time with costs being low in Central Illinois, so if our client plans to stay in the home for the foreseeable future, refinancing is worth it to save them money — not only monthly, but over the life of the loan as well,” he says.

In my case, my family is planning to stay in our home for close to 20 years; the amount of money we are paying for closing costs will be made up in two years, and we will save more than $17,000 over the life of the loan.  You might save more or less depending on the amount and length of your loan, among other things.   But it’s sure worth looking into.

Are you wondering if refinancing might be a good option for your family? You can input all of your information in a loan calculator to compute what your savings will be if you refinance your mortgage.




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