With interest rates hitting an all time low over the past few weeks, many homeowners are considering refinancing. To decide if refinancing is the right option for you, ask yourself the following questions:
Why Do You Want to Refinance?
1. Lower Your Interest Rate & Payment: This is the most popular reason to refinance. Is your current interest rate higher than what is available today? If so, it might be worth taking advantage of the lower rates.
2. Shorten the Term of Your Loan: If you have a 30-year loan, it may be to your advantage to change it to a 15 or 20-year loan to pay off your mortgage quicker.
3. Cash-Out Refinance: You might have enough equity to cash out and invest in something else such as your child’s education, a new business or an investment property. Or you may want to increase your cash reserve.
Once you know why you want to refinance, ask yourself . . .
How Much is it Going to Cost?
There are fees and closing costs involved in refinancing.
The Lenders Network explains:
“As an example, let’s say your mortgage has a balance of $200,000. If you were to refinance that loan into a new loan, total closing costs would run between 2%-4% of the loan amount. You can expect to pay between $4,000 to $8,000 to refinance this loan.”
They also explain that there are options for no-cost refinance loans, but be on the lookout:
“A no-cost refinance loan is when the lender pays the closing costs for the borrower. However, you should be aware that the lender makes up this money from other aspects of the mortgage. Usually charging a slightly higher interest rate so they can make the money back.”
keep in mind that given the current market conditions, it can take a little longer to execute the process today. Many homeowners are choosing to refinance at this time.
Refinancing has been on the rise lately. If you are comfortable with the upfront cost and a potential waiting period due to the high volume of requests, then ask yourself . . .
Is it Worth It?
Just do the math. Will it help you save money? How much longer do you need to own your home to break even? Will your current home meet your needs later down the road? If you plan to stay for a few years, then refinancing may be a good move for you.
However if your current home doesn’t meet your needs, you may want to consider using your equity for a down payment on a new home. You’ll still get a lower interest rate on your new home.