Low interest rate refinancing can be a great investment tool for homeowners. People choose to refinance their existing mortgages for many reasons, sometimes to shorten the term of the loan, and sometimes to lower the interest rate for better monthly payments.
What is Low Rate Refinancing?
Unlike cash out refinancing, a low rate refinance isn't done to get money from your home's equity. The purpose of this kind of refinancing is to put money into your home more quickly and get more value for each payment as you do so.
How Does Low Rate Mortgage Refinancing Work?
In essence, it's possible to use a new, lower interest mortgage to pay off an old, higher interest one. Whether or not it's worth refinancing to make this switch will depend on the amount of money you'll save in lower monthly payments (or a shorter amortization time) versus the amount you'll have to spend in closing fees to refinance.
If you're shopping for a low-rate mortgage to refinance your home, you'll want to make sure you get the lowest interest rate available for your credit type and terms that you are comfortable with. Mortgage brokers may appear to offer a wide array of options for refinancing, but each will be biased toward certain lenders, so it is a good idea to check with more than one broker or bank. Online services like Lending Tree and Lower My Bills can be a good way to compare available mortgages until you're satisfied you've found the best deals available.
When is the Right Time to Refinance a Mortgage?
Whether or not you choose to seek low rate refinance, you should also consider the amount of time left on your current mortgage. If you're in the final five or 10 years of a 30-year mortgage, the majority of your payments will go toward the principal, rather than the interest. It doesn't make much sense to refinance, even at a better rate, if it means paying more interest in the early months of your new mortgage, on top of closing fees. If refinancing your mortgage will cost you more in closing fees than you'll save in interest, it's generally better to stay with the mortgage you have.
Keep in mind, however, that there are several ways to use a lower interest mortgage to your advantage. You can keep the amortization time the same and owe smaller monthly payments - much smaller in some cases - or you can continue paying the same amount each month and save even more in the long run when your mortgage ends two, or three, or even ten years earlier. Either way, you can potentially save thousands of dollars - well worth the effort of looking into refinancing when mortgage rates are low.