“Is it time for us to get out of our existing mortgage, pay a penalty (if necessary) and refinance at a lower rate?”
That is one of the most frequently asked questions for those in higher interest rate mortgages or those worried about what mortgage rates will do over the next few years.
The most important thing to realize is there’s no easy answer.
There are important questions to ask: What is your current interest rate? What is the remaining term on your mortgage? What are your current payments.
That information will supply us with the tools to calculate if it is worthwhile to pay a penalty (if appropriate) and refinance at a lower rate.
What you must realize is by lowering the interest rate and leaving your payments the same as when your rate was higher, the principal amount on your mortgage will reduce much quicker, thereby saving a lot of future interest costs. Also, when it comes to a future renewal, the principal balance of your mortgage will be much less.
If you are worried about inflationary aspects due to the economy, you may want to renew early and guarantee a rate if mortgage interest rates increase in the next few years. Plus, if you are on a tight budget, lower payments may help ease a cash crunch.
Another thing to consider is consolidating high interest rate credit cards and personal loans with the existing mortgage to pay off the higher rate debt to lower your monthly cash outlay. If you want to consolidate those into the existing mortgage, and you can afford your existing monthly payments, refinance and keep your monthly payments the same as if you were paying at the higher interest rates. That will save you interest over the term of the mortgage.
Now, if your mortgage is coming up for renewal in the next few months, consider contacting a mortgage professional as they can guarantee an interest rate for that period of time. If interest rates increase in that time, you will be safe from an increase. Also, decrease you will be guaranteed the lower rate.
The only way to know if you will save by refinancing is to talk to a mortgage professional. They have seen the ups and downs over the years and can tailor a new mortgage to suit your needs.