Let’s get all the banker talk out of the way right off the bat. Simply put, refinancing means taking on a new loan with a lower interest rate in order to cover an existing one.
That just leaves the question of whether now is a good time to refinance.
Lately, the cost of refinancing has gone up due to Federal Reserve rate hikes. Although the Fed only directly changes the overnight rate at which banks lend money to each other, any increase will have spillover effects into other money borrowing agreements.
These hikes have increased the cost of borrowing for almost everything, including mortgages and refinances.
But that doesn’t mean it’s necessarily a bad time to refinance. Here’s 3 ways you can start benefiting next month from a refinanced mortgage:
3 immediate benefits of refinancing your mortgage
You can lower your monthly mortgage payment. This is the big one; if you feel like your mortgage payment is too high for your monthly budget, there’s 2 ways refinancing can lower that dollar amount.
A new loan with a lower rate will reduce the amount of interest you pay on top of your total loan. Lower interest payments means lower monthly bills.
You can also take on a new loan with a longer timeline; it’ll take you longer to pay off the full amount, but securing a longer loan term will lower the amount paid each month.
You can reduce your long run interest costs. This benefit is a great option for people who feel like they can afford to pay off their mortgage ahead of time.
You can of course make advanced payments on an existing loan, but refinancing will let you make these payments with a lower interest rate. Certified lenders love the credibility associated with advanced payments, so you should be able to find a lower rate than your current mortgage.
You can eliminate mortgage insurance. It’s not as big a deal as securing a lower interest rate, but anytime you can cut a monthly expense without incurring additional risk, we consider it a big win!
Refinancing your mortgage is a great way to save money on one of your largest monthly expenses. But it’s just one part of the complex financial journey of home ownership.
One of The LevelUp’s sponsored products, Magnifi, uses AI to assist you with the the entire process. Starting with saving for a down payment, and moving on to a detailed plan to pay off your mortgage, Magnifi has built in, customizable, financial journeys.
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