Your mortgage is probably the biggest loan you will ever sign for. So when you hear that rates have moved or a neighbor mentions they just refinanced, it is fair to wonder whether you are leaving money on the table.
Refinancing is not automatically a good move, and it is not automatically a bad one either. It comes down to your numbers, your timeline, and what you want your payment to do for you. Here is a straightforward look at when it makes sense.
What Refinancing Actually Does
Refinancing means replacing your current home loan with a new one. The new loan pays off the old one, and from that point forward you make payments under new terms. That could mean a lower rate, a different loan length, a switch from an adjustable rate to a fixed rate, or cash pulled from the equity you have built.
Five Signs It Might Be Time
1. Rates have dropped since you bought. This is the most common reason people refinance. Even a percentage point can add up to real money over the years you have left on the loan. If you locked in during a high point, take a look at current rates and run the numbers.
2. Your credit has improved. Maybe you were rebuilding when you bought the house. If your score has climbed since then, you may qualify for terms that were out of reach before, even if the market itself has not changed much.
3. You want to pay the house off sooner. Moving from a 30 year loan to a 15 or 20 year loan raises your monthly payment, but it can cut your total interest dramatically and get you to a paid off home years earlier.
4. You are ready to get out of an adjustable rate. If your ARM is about to adjust and you would rather know exactly what your payment will be every month for the next two decades, refinancing into a fixed rate buys you peace of mind.
5. You need to put your equity to work. Many members have more equity in their homes than they realize. Sunlight FCU offers refinance and second mortgage options that can fund a new roof, a shop, or the consolidation of higher interest debt into one payment.
Do the Break Even Math First
Refinancing is not free. Closing costs generally run a few percent of the loan amount, covering things like the appraisal, title work, and origination. The question to answer is simple: how long will it take your monthly savings to cover those costs?
Divide your total closing costs by your monthly savings, and you get your break even point in months. If your costs are $3,600 and you save $150 a month, you break even in 24 months. If you plan to stay in the house well past that point, refinancing likely pays off. If you are thinking about selling next summer, it probably does not.
When It Makes Sense to Wait
Hold off if you are close to the end of your term, since most of your payment is going toward principal by then and restarting the clock can cost you. Wait if you plan to move soon, if your credit is in the middle of a rough patch, or if the savings are so small that the closing costs eat them up. A good lender will tell you when the answer is no. We give members that same straight answer about refinancing a car loan.
Keep an Eye on Your Loan Year Round
Whether or not you refinance today, it helps to know where you stand. With online banking and the Sunlight FCU mobile app, you can check your loan balance, review your payment history, make payments, and watch your equity grow without waiting for a paper statement. When rates move, you will already have the numbers you need to make a quick decision.
Let’s Look at Your Numbers Together
As a not for profit credit union that has served Wyoming families for more than 80 years, Sunlight Federal Credit Union does not benefit from talking you into a loan that does not fit. Our earnings go back to our members through competitive rates and lower fees, and our mortgage team lives in the same communities you do. Buying instead of refinancing? Start with our guide to purchasing a home in Wyoming.
Bring us your current mortgage statement. We will walk through your rate, your remaining term, and your break even point, and give you an honest answer about whether refinancing is the right call for your household.
Stop by our Cody, Powell, Worland, or Sheridan branch, or start your application online today.
Neighbor to neighbor, let’s talk.
