How Low Can You Go?
When refinancing a mortgage to lower your monthly payments, it is important to understand what determines the terms and amount of both. Typically, monthly mortgage payments consist of four parts: principal, interest, taxes and insurance. You may be most familiar with the interest – the percentage of the loan amount that you’re changed for borrowing money. Your interest rate is based on market conditions, your credit score, down payment and mortgage type, and a decrease of at least 1% in the rate is typically required to be cost effective when compared to the lower monthly payment.
But there are other factors that play a role as well, including:
- Discount points: Points, which each equal 1% of your mortgage amount, can be purchased to lower your rate; this option may make sense if you’re planning to stay in your home for an extended period of time.
- Private mortgage insurance (PMI): If your original down payment on your property was less than 20%, there’s a good possibility you’re paying PMI. If you have a strong history of timely monthly payments and enough equity built up in your property, refinancing may give you the opportunity to lower or eliminate the amount of any PMI payment.
- The loan term: A longer loan term often results in lower monthly payments. But be aware that you may end up paying more interest over the life of the loan, since repayment of the principal is now extended over a longer period of time.
Know Your Options
For more on ways to lower your monthly payment and whether it’s a good choice for you, contact our loan consultants at (800) 210-8849 to find out which options you may qualify for and how to make them work.