Home mortgage rates are near historical lows. Refinancing your California home could potentially save you thousands of dollars. Plus, if you’ve owned your property for at least a few years, you may have built significant equity, which can make refinancing a fast, simple process.
Reasons to Refinance
There are many good reasons to consider refinancing. Here are some of the most common:
Lower Your Monthly Payments
If interest rates have come down since you got your loan, you may see significant savings by refinancing at the lower interest rate. The rule of thumb is that refinancing is a good idea if you can reduce your interest rate by at least 1%.
Switch to a Fixed-Rate or Adjustable-Rate Mortgage
This can make sense depending on how long you think you’ll live in your current home. ARMs start with lower rates than fixed-rate mortgages. But periodic adjustments can raise the rate, eventually surpassing the rate of a fixed-rate mortgage. In this situation, converting to a fixed-rate mortgage results in a lower interest rate (and lower monthly payments) and removes the risk of future interest rate hikes.
Conversely, converting from a fixed-rate loan to an ARM can make sense if interest rates are falling and you plan to stay in your home for only a few years.
Shorten Your Mortgage Term
Shortening your mortgage term (i.e. from 30 years to 20, 15 or 10 years) may result in higher payments each month, but you’ll build equity more quickly and could potentially pay off the loan in fewer years, saving you money in the long-term.
If interest rates have come down since you obtained your first mortgage, and you’re able to further lower the rate by choosing a shorter mortgage term, the additional amount you’ll pay each month may be minimal.
Tap into Equity
If you’ve built up some equity, you can use it to get cash. This might be a good option if you need the money to pay for a large purchase such as your child’s college education or to put an addition on your home.
Use the equity in your home to get cash and pay off your high-interest debt or to make one consolidated monthly payment instead of multiple smaller payments to different creditors.
Switch from a Jumbo Loan
If your initial mortgage was a jumbo loan, but you’ve now paid down the balance to less than $484,350, you may be able to refinance with a regular loan, which could mean you’ll qualify for a lower interest rate.
When to Refinance
If you can save money by refinancing, you’ll certainly want to consider that option. However, refinancing does incur some expenses, including closing costs, title insurance and escrow fees. You may also have to pay for an appraisal, taxes and transfer fees.
The costs of refinancing typically total 3% to 4% of the loan’s principal. Though many banks advertise no-cost mortgages, what they’re really saying is that you can get a mortgage with no out-of-pocket costs. The closing costs are then added to the loan balance.
When considering a refinance, you’ll want to calculate whether the savings you get from a lower interest rate will offset the costs you’ll incur. You’ll likely need to remain in your current home for a minimum of one year to recoup those costs.
Bonus Tip – If you can afford it, consider directing the amount of money you save from a refinance toward extra principal payments. Your monthly mortgage amount would then stay the same, but you’ll build equity more quickly and can potentially pay off your home sooner.
Why Refinance with Santa Fe Mortgage
Santa Fe Mortgage is a licensed mortgage broker in Lompoc, serving residents of Santa Barbara County since 1995. We offer competitive loan rates combined with highly personalized service to help you refinance a home in the state of California.
As an independent agent, we work on your behalf to find a lender. Over the years, we’ve built an extensive network of credit unions, banks and other lenders. Our industry-wide reputation and business volume give us the ability to negotiate the lowest mortgage refinancing rates and best terms for you. We’ll help you find the right refinancing loan for your individual financial situation.