We’ve talked about the way current mortgage rates affect your buying power, but do those historic low rates on new loans benefit a homeowner who purchased their house five, ten, or even fifteen years ago when the rates were a whole lot higher? Maybe not in the same way, but whether or not you’ve been in your home for a few years or a lot of years, it might be time to consider refinancing.

Refinancing. That word tends to pop up frequently for some people and others never even consider it. The simple explanation is that you pay off your current home loan and get a new one. It sounds like a lot of trouble to some people. After all, it was a decent amount of work to get your first mortgage. But there are a few really important things to look at that could make refinancing your home a choice that improves your financial situation a lot!

Some experts suggest that the rule of thumb says you refinance if you’re going to get a 1% drop in interest rate. But this is a blanket statement that doesn’t actually apply to every situation. The rate a lender will offer you when you refinance your home has to do with your credit score and the amount of equity you have in your home.

Equity. Here in Los Alamos, residents who bought their homes in the last decade or more have seen an incredible rise in the value of their house. Some of you might have even gone from being upside down on your home (you owe more than your house is worth) to having 20% equity or even more! This is wonderful news! First of all if you have a good amount of equity in your home, you might not need to carry mortgage insurance anymore. Sometimes you see this on your payment statements as PMI. This could either reduce your monthly payment, or allow you to apply more dollars every month to the actual principal amount on your loan. Either way it’s a win!

Maybe you’d like to shorten the term of your mortgage. With the increased buying power that comes with lower interest rates and higher equity, you could get a fifteen year mortgage instead of a thirty year and potentially see very little change in your current payment. Imagine not feeling stuck in your home here in Los Alamos because there’s nowhere else in town to move. Imagine feeling closer to paying off your home and having the opportunity to make changes in your financial situation and your life in other new and exciting ways!

Perhaps you bought your home when mortgage lenders were offering creative financing options like 80/20 loans where you borrow your down payment. Or you might have cashed out on equity at some point and gotten a second mortgage. This could be the perfect time to consolidate and only have one payment with an improved rate.

No matter which of these situations apply to you and your family, there are a few things you should consider when you think about refinancing your current mortgage.

How long are you planning to stay in your home? If you’re planning to move away from Los Alamos in the next year or two, refinancing your home might not be the right choice. There are closing costs associated with refinance. Credit checks, appraisals, and other necessities cost money. It takes a certain amount of time for any savings you might get on your payment to recoup those closing costs.

How is your credit? It might be that you’ve hit a rough financial patch after 2020. Check with your lender to see what you can do to get your credit score exactly where it needs to be in order to get the full benefit of a refinance. It might be that paying off a few credit cards or personal loans could get you a better rate and a deeper savings each month than you ever thought possible.

Regardless of what your situation is, don’t be afraid to ask for more information. Give me a call if you’d like a recommendation on a reputable mortgage lender who will work with you on your refinancing options. And as always, if you’ve decided to sell or buy a home in Los Alamos, I’d love to hear from you!