Thinking about how to save money in your household? Maybe you’ve heard the word “refinancing” and wondered what it means. Simply put, refinancing means taking out a new home loan to pay off your old one. But why would you want to do that?

For many homeowners right here in Michigan, refinancing can be a smart move. But it’s not the right choice for everyone. Let’s go through some questions to help you figure out if refinancing makes sense for you right now.

Ask Yourself These Questions:

• Are interest rates lower now than when you got your current loan? This is a big one! If interest rates have dropped since you first got your mortgage you might be able to get a new loan with a lower monthly payment. That can save you money each month! Interest rates reached their lowest point in late 2021 (in the 3% range for a 30-year fixed mortgage using a round number). In spring of 2022 they started to rise and reached their current high point in October 2023 (close to 8% for the same 30-year fixed loan again using a round number). Since then, rates have drifted lower, if your mortgage rate is greater than 7% at the time of this blog post, rates are generally lower now than when you closed on your current loan.
• Do you want to pay less money each month? A lower interest rate usually means a lower monthly payment. If your budget feels a little tight, refinancing could give you some breathing room.
• Do you want to pay off your home loan faster? Maybe when you first bought your home, a 30-year loan made sense. But now, you might want to pay it off in 15 or 20 years. Refinancing to a shorter loan term means higher monthly payments, but you’ll own your home sooner and pay less interest overall.

Pro Tip: If you find rates are not advantageous to refinance to a shorter term but you still want to pay off your mortgage sooner, add as much as you can to your monthly payments to pay down the principal balance faster, paying less interest on the mortgage because it going to paid off significantly sooner than the 30-year term with the additional payments.

• Do you need cash for something important, like home repairs or getting rid of other debt? With a “cash-out refinance,” you borrow more than what you currently owe on your mortgage and get the extra money in cash. This can be helpful, but remember you’ll owe more on your house and be capped at a maximum new mortgage amount of 80% of the appraised value of the home.
• Is your credit score better now than when you got your first loan? A better credit score often means you can qualify for a lower interest rate on a new loan.
• Are you planning to stay in your home for a while? Refinancing comes with some costs (like paying for an appraisal and other fees). If you plan to move soon, you might not save enough money to make those costs worth it. Knowing your “breakeven” point is crucial in making the decision to refinance or not. Conventional wisdom says that if you can recover the closing costs through the savings in a year or less, your breakeven is low enough to consider refinancing.

Think About This for Michigan Homeowners:

• Have you been thinking about finally finishing that basement or updating your kitchen in your Livonia home? A cash-out refinance could help make those dreams a reality.
• Have a recent high school graduate heading off to college in the fall? A cash-out refinance can help with education costs and may help prevent the need for student loans. My eldest child is graduating this year and is off to Michigan State in the fall, the bills have just begun for our family but boy they are some doozies.
• Are you dealing with high-interest credit card debt? Refinancing to consolidate that debt into your mortgage could potentially save you money on interest in the long run (but be careful not to build up that debt again!).

What’s Next?

If you answered “yes” to some of these questions, refinancing might be worth exploring. To get a clearer picture of your options and see if refinancing could save you money, reach out to me today for a free, no-obligation consultation. As a local mortgage lender right here in Metro Detroit, I can help you understand the current Michigan market and figure out the best path forward for your specific needs. In our next blog post, we’ll dive into the different types of refinancing available to Michigan homeowners. Stay tuned!