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3 Reasons to Refinance – Even with a New Mortgage

Current mortgage rates in Colorado are between 2.6% and 3%, but some lenders are offering even better rates. Refinancing is never an easy decision because it does take time, can cost money and is a step many homeowners don’t want to take.

However, refinancing is a good option for many Colorado residents, even if you have a new mortgage of just six months or are a few years into your 30-year mortgage.

Before discounting the benefit of refinancing, it’s important to know the main reasons to refinance, even if your mortgage is “new.”

1. Rates are Lower

If you’re paying off a mortgage with a 3.85% interest rate, you might think that today’s 30-year mortgage rates in Colorado, which are 2.75%, won’t make much of a difference in your mortgage payments.

However, on a $300,000 mortgage with no down payment, you’ll pay:

  • $1,406 per month at 3.85% interest
  • $1,225 per month at 2.75% interest

In principal and interest, you’ll pay $181 less per month, or $65,160 less during the lifetime of your mortgage. Significant savings can come from refinancing, which is often the main reason to refinance even if you have a relatively new mortgage.

Note: Consider all of the fees, closing costs and other factors into the equation to ensure that you’re still saving money.

2. Consolidate Debt with High-Interest

If you have high-interest debts, you may want to consider refinancing at low interest rates using a cash-out refinance. With many people seeing their home values rise significantly due to low housing inventory, a cash-out refi may allow you to:

  • Lower monthly debt obligations
  • Save money

You must be sure that you consider debt consolidation carefully. While you can save money, you’re also transferring unsecured debts to secured debts. Therefore, it’s essential to consider your finances and your ability to repay your mortgage with the added cash-out amount.

3. Get Rid of Mortgage Insurance

Mortgage insurance is a monthly expense that you’ll see on your statement as private mortgage insurance or PMI. If you didn’t put down 20% or more on the home, you’d be paying extra on your mortgage every month.

FHA loan borrowers also pay what is known as a mortgage insurance premium (MIP) over the lifetime of their loan.

MIP is 0.85% of the mortgage amount paid-up throughout the 30-year mortgage term. You cannot cancel MIP in the same way that you can PMI. If you have 20% equity in a home, you can cancel the PMI.

FHA loan holders who want to stop paying MIP should switch to a conventional loan during a refinance.

Final Thoughts

Refinancing is a personal decision that shouldn’t be taken lightly. When you refinance, be sure that you’re not doing it for the wrong reasons, such as switching to a longer-term loan or switching from a fixed rate to an ARM loan.

Generally, if the interest rate isn’t a full percentage point less than what you’re paying, it may be best to stay with a current mortgage. This is because fees and closing costs can quickly add up, but there are some programs, such as the FHA Streamline Refinance, where many fees are eliminated.

Additional Resources

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