With the current low mortgage interest rates, it seems like everyone is thinking about refinancing. It may be a perfect time for you to do that, but it may not. There are reasons where it may not make sense to refinance. When I meet with clients, I go over their situation and we decide what makes sense. There are times I tell clients not to refi – and then give them the reason for not doing the refinance. Some loan officers may say it makes sense but it doesn't always. Here are some reasons for not refinancing:
-How long are you planning to keep your home? If you only plan to stay there for another year or two, don't refinance. There are always costs involved and you want to make sure you are in the home long enough to recoup those costs. If you can do a no cost refinance and not add to your mortgage amount, it may make sense but make sure there aren't any hidden costs that you are not aware of.
-You need money. If you are in financial trouble, it may not make sense to refinance. If you are trying to pull out the equity in your home, make sure you are not putting yourself in a situation that may make it worse. If you need to sell, you may want to keep the equity in the home.
-Your mortgage is almost paid off. If you have almost paid off your mortgage, it may not make sense to lower your rate. You may be increasing the term of your mortgage and that may cost you money in the long run. Decide if it makes sense to do that – or try and keep your mortgage term at the same number of years that you have remaining. You can do a 1o yr or a 15 yr mortgage and that may make sense.
-Look at the numbers. If you are looking at refinancing to a lower rate, but only slightly lower, look at all your numbers and see how long it will be before you recoup the costs involved. There may not be much out of your pocket, but if you are adding money to your mortgage, it's still a cost. If you are saving $100/month but it's costing you $5000, it will take you over 4 years to recoup that cost. Make sure you are going to be in the home (or keep that mortgage) at least that long.
When you are refinancing, you can pay the costs yourself, sometimes you can roll them into the mortgage or you may choose a higher interest rate to pay your closing costs. Make sure it makes sense, figure out the time frame and how long it takes to recover your costs of refinancing. For some people it may not make sense to do the refi- but you want to make sure you are saving money!