How to Lower Monthly Mortgage Payments by Refinancing
09.15.2020 | Category: Homebuying
For many homeowners, your mortgage payment is often the most expensive item in your monthly budget. Thanks to favorable market conditions that have kept interest rates at or near historic lows, you may have an opportunity to lower your monthly mortgage payments by refinancing. Let’s explore the ways that refinancing may be able to help you save on your mortgage costs:
Refinance to a Lower Mortgage Interest Rate
As you’ve probably heard from countless TV and online news sources, interest rates are really low right now. Depending on the specific terms of your first mortgage, refinancing can potentially mean big savings. Refinancing to a lower mortgage interest rate is what’s known as a rate and term refinance. This can also be beneficial if your first mortgage was an ARM and you’d like to lock in your interest rate so you’re not subject to market conditions.
While there are a variety of factors that can impact your decision to refinance, if your current mortgage interest rate is at least 0.50%-0.75% points higher than current market conditions, it’s worth having a conversation with a mortgage loan officer. You can check out today’s market rates on our website.
Refinance to a Longer Term
By refinancing your mortgage to a longer term, you’re essentially giving yourself a longer period of time to pay off your mortgage. For example, if you’re 9 years into paying for your mortgage, by refinancing the remaining balance into a 30-year mortgage you should be able to reduce your monthly payments. Keep in mind that while your monthly mortgage payments will be lower, you’ll be paying more over the life of the loan in interest.
Get Rid of PMI
While eliminating PMI isn’t technically a way to refinance your mortgage, it's worth mentioning because it can help you lower your monthly mortgage payments. Depending on the type of loan program that you utilized when you first purchased your home, if you put less than 20% down you may be paying Private Mortgage Insurance (PMI) as part of your monthly mortgage payment. If your home has increased in value or you’ve built more than 20% equity in your home, you can contact your lender to remove PMI from your mortgage loan.
As part of the process to remove your mortgage insurance, your lender may require you to get an updated appraisal on your home. While there are some upfront fees to pay for a new appraisal, removing your PMI can save you hundreds and sometimes even thousands of dollars annually. If you have the equity built in your home, it’s definitely worth exploring.
How do I Refinance my Mortgage?
We know that the idea of going through the mortgage process all over again can be intimidating. The good news is, you’re already familiar with the mortgage process so the process of refinancing your home will be very similar to the process you experienced when purchasing your home (minus the house hunting). To get started, you’ll need to complete a mortgage application and review the financing options that your mortgage loan originator prepares for you.
Similar to when your purchase loan experience, when refinancing you’ll be asked to provide documentation about your assets, liabilities and income. Depending on the type of mortgage program that you used when you originally purchased your home, there are several streamlined refinance programs that require less paperwork and documentation. These include the FHA streamline refinance and VA streamline refinance (also known as the VA IRRRL or Interest Rate Reduction Refinancing Loan).
Once you’ve completed your application, your loan file will go through the underwriting process and go to closing, just as you did when you bought your home. And when you work with a mortgage loan officer at Mutual of Omaha Mortgage, we’ll guide you through the entire process to make your refinance as seamless as possible.
Lowering Your Monthly Mortgage Payment Can Lead to Big Savings
If you’re looking to make some extra room in your budget, it’s never been a better time to explore your refinancing options to reduce monthly payments. If you’re ready to get started, or would like a no obligation mortgage analysis, please don’t hesitate to reach out to us. We’re here to help