Is it Right to Refinance?
You may have visited with friends and family who refinanced their home and wondered if you should too? How do you know if refinancing is the best option to pursue?
Most homeowners decide to refinance when one or more of the following favorable conditions exist:
Your home has greatly appreciated in value: Occasionally, certain regions of the country experience a significant rise in home prices. Refinancing at a time like this is a good decision so that you are able to take advantage of your home's increased equity.
Mortgage interest rates are falling: If market rates drop 1/2% to 5/8% below your current interest rate, it could be a good scenario for you to refinance your home. In a market where interest rates are falling, two potential benefits exist that could help lower the overall loan amount. The first option lets homeowners shorten the terms of their repayment while still making the same or comparable payment amounts. The other option allows homeowners to lower their monthly payments while keeping the same or comparable repayment term. Either way, homeowners find themselves with a way to save money on their mortgage investment.
You are early in your mortgage term: Homeowners who are in the earlier years of their mortgage term tend to find more advantages from refinancing. Refinancing at this point, when payments are mostly being directly towards interest, tends to benefit homeowners more than later in the life of the mortgage when payments are going more towards the principal than the interest.
Consider it All
Make sure that if you do decide to refinance, it is not an impulsive reaction to one, singular factor like suddenly falling rates. To make the best decision for you and your financial situation, you'll want to consider all the contributing factors such as how long you plan to stay in the home and how refinancing might help you achieve your long-term financial goals.
It's key to remember that refinancing starts homeowners off with a new mortgage entirely; it takes them back to the beginning of the process. But, the benefits of starting over with a new mortgage may be entirely worth it. Homeowners are able to:
- Change their loan from a balloon or an adjustable rate mortgage to a fixed rate mortgage and thereby lower the risk of a changing interest rate and an increasing monthly payment.
- Decrease the amount of their monthly mortgage payments by lengthening the repayment term or changing to a lower interest rate.
- Condense the repayment term of the loan or benefit from the lower mortgage market rates which allows homeowners to decrease the interest costs of the life of the loan.
- Shorten the term of their loan and end up paying off the loan quicker.
Any of these situations will free up income that could help consolidate debts or go towards other expenses such as college fund, retirement, home improvements, etc…
Is it Right to Refinance?
What is the Best Choice?
How do You Get Ready for Closing?