We’re seeing record lows for interest rates on getting a mortgage in Michigan right now – hanging at around 3.5% – according to the Mortgage Bankers Association.  With those numbers, not only is it a great time for first-time buyers to purchase a home, it’s also a great time to refinance your home in Michigan.

Homeowners in the Metro-Detroit area could potentially save hundreds (even thousands) each year with a refinance, but you need to understand a few key things

• Refinancing isn’t for everyone
• You may not be able to get approval on a refinance
• You’re still likely to have out of pocket costs associated with a refinance

Let’s look at these points in a little more detail so you fully understand the process before talking to a Michigan mortgage lender.

Understanding the Mortgage Refinance Process

As defined by the Federal Reserve, the central bank who overseas short-term interest rates, refinancing your home in Michigan means paying off the existing mortgage in order to create another.  In order to save money, that new mortgage can be structured in a number of ways such as switching to a fixed-rate mortgage, consolidating loans or simply refinancing to get a better rate.

Achieving a better interest rate is what drives most mortgage refinances here in the States, especially in Michigan.  With the tumultuous economic climate around the world, interest rates have plummeted to levels that haven’t been seen in decades.

Why Refinance?

It stands to reason that the main drive is to lower rates and save money when a homeowner applies for a refinance.  On a $200,000 home, lowering the interest rate from 5.75% to 3.6% on a 30 year loan would adjust the payment from $1167.15 down to $909.29.  That’s a savings of more than $3,000 a year.

Of course that’s no guarantee that everyone will save money on a mortgage. Refinance.  You have to factor in the size of your mortgage, current rates, the current value of the property and more.

Paying Refinancing Fees

Your loan won’t get paid off free and clear, and a new mortgage started, without putting some money in.  The fees to refinance can potentially be substantial depending on a number of factors.  This is where you want to see if your savings outweigh the refinance fees.

The closing cost of the refinance is going to include an appraisal fee, underwriting fees, escrow fees, title insurance, recording fees and a notary fee.  The taxes, insurance and interest are completely separate.

If you’re planning on moving soon, say in two years (or even three), the amount you pay in refinancing fees might be so much that they nullify any savings.  It makes a lot more sense to refinance if you’re sticking around for a while.

Adjusting your Mortgage Terms

When you refinance and opt for a new mortgage, you can change the length of your loan to help you save.  It might make sense, for example, to switch from a 30 year fixed to a 15 year.  This can save you a lot in the long-term even if you’re paying more each month.

For example: if you took out a 30-year mortgage loan of $100,000 at 5 percent interest, your monthly payments would be $536.82, and you’d end up paying $193,255.78 over the life of the loan. And the same loan ($100,000 at 5 percent) over 15 years would cost you $790.79 a month, but it would end up costing you $142,342.85 over the life of the loan.  That means you’re saving over $50,000 by cutting the length of your mortgage in half.

That change can also go the other way.  If you have a 15 year loan that is keeping you strapped for cash, you can work with a Michigan mortgage lender to refinance into a 30 year fixed rate.  You pay more interest in the end and your home costs more by the completion of the mortgage, but your monthly bill is lower and your home is more affordable – allowing you spend on necessities and build wealth for retirement.

Another Perk – Adjustable to Fixed Rate Mortgages

If your original mortgage is an Adjustable-Rate Mortgage, then talk to a Michigan mortgage lender about switching to a fixed-rate.  You may have seen your monthly mortgage payment drop lately as interest rates have come down, but as an industry we don’t really expect rates to drop much lower – and they’re not likely to hold steady at these low rates for long.  The mortgage industry is expecting rates to begin to rise.

If you remain in an adjustable rate mortgage, you lose out when interest rates begin to climb.  Switching to a fixed-rate mortgage now, however, ensures that you’re locked in at the current rates.  Not to mention the sheer peace of mind knowing exactly how much you have to pay each month for your home.

One final point to consider is the state of your credit.

It’s an unfortunate truth, but not everyone is capable of qualifying for the lowest rates available.  If you have less-than-perfect credit or bad credit, you can expect higher interest rates and you could wind up paying more in the long term.

To find out if you qualify for a refinance and the potential for savings, talk to a Michigan mortgage lender today.  At Ross Mortgage, we specialize in helping Michigan homeowners get the best rates on their mortgage.