If you plan to refinance your mortgage, you’ll often have to make quite a few choices; such as how long you want your new home loan to last. Aside from determining how long you’ll be paying off your loan, this can also have an effect on the rates you pay, too. Because of this, it’s often a wise idea to consider all of your options carefully.
Why choose a 20 year term?
One of the most common terms for refinancing is the 20 year option. Since you’re getting a new loan to replace your old one, your new loan term will be the one that you adhere to from now on – so if you have been paying off your 30 year mortgage for 10 years and pick a replacement with a 30 year term, you’ll start back at 0.
While this does mean that you’re likely to get lower monthly rates, since you’ll be paying a lesser amount of mortgage over the same duration of time as before, this may not be ideal for everyone. Some may want to pay their mortgage off sooner rather than later, and others may want to keep their overall time paying their mortgage the same as they originally intended.
A shorter term often has a lower interest rate and higher monthly payments – which for some homeowners, might be the preferable option. However, in general, refinancing for a loan that lasts 20 years is likely to be better suited to those who want a mortgage that’s more of a middle ground between long and short term options.
Average rates for a 20 year mortgage refinance
If you’re considering choosing a 20 year rate home loan, you may want to get a better idea of how much you might be looking to pay. Keep in mind that when comparing rates, the APR (annual percentage rate) is often the most important figure to consider, as it generally encompasses all of the costs involved with your payments.
In most cases, choosing a fixed rate is the best option for those who want a 20 year term on their home loan. Currently, the annual percentage rate for fixed refinance mortgages tends to be around 4.225%, with an interest rate of 4.125%.
What can affect your rates?
There are often quite a few things that can have an effect on how much you pay on your mortgage’s rates – which is why refinancing mortgage calculators can often be incredibly useful tools for those who want to make sure that they’re making the right decision by replacing their current home loan.
Often, one of the biggest factors to consider when refinancing is your credit score. Not only can it affect your chances of getting an approval, but it can also impact your interest rate, too. Generally, the better your credit is, the lower you’ll have to pay in interest – and with lower interest rates, and you’ll often have smaller monthly repayments to make, too.
Because of this, if you’ve got a lower score than you did when you first got your mortgage, refinancing may not be the ideal option for you – as you may end up paying more than you are on your current home loan.
If you have low credit, but still think that refinancing is the right option for you, it may be a wise idea to try and improve your score before making an application. Fortunately, there are often a number of things that you can do raise your credit; from ensuring that all your bills are paid on time, to keeping your balances low on your credit cards.
While you may have to wait a little longer before refinancing your home, you’re likely to find that it’s well worth it for the lower interest rate that a higher credit score can often provide.