As mortgage interest rates continue to stay low, there are many people that wonder if they should refinance or not. For some it may make sense to lower the rate, but for others, it may make more sense to just pay extra towards the principal.
Refinancing means paying off your current mortgage and replacing it with a new mortgage. People refinance for many reasons, lowering the interest rate, cutting the term down, consolidating your debt and maybe just to get rid of mortgage insurance. If you want to lower your overall expenses – maybe lower your mortgage payment by $100/mo and refinancing does that, it may make sense. However if you want to lower your overall mortgage expense, refinancing may not make sense- there are always closing costs, even with a no-cost refinance, so for some it may make more sense to just apply the extra money to your principal. That way you are paying off your mortgage earlier.
Look at the time it will take it for you to recoup the costs of refinancing. If you will recoup the costs before you plan to sell or pay off the loan, it may make sense. If you are thinking you may move in the next 3-5 years, it may not make sense to refinance. If you currently have an adjustable rate, it may make sense to refinance to a fixed rate if you will be in the home long enough. However, if you think you will just be there a couple more years, keeping your adjustable rate, may make more sense.
Before you refinance, think about your long term plans. How long are you going to live in this home? Are you planning to upgrade your home? Do you need to do any repairs? It may make sense to use the current equity to do the repairs – the question becomes is it better to use a home equity loan or refinance? Once you know how long you think you will be in the home, it becomes easier to answer the question about refinancing!
There are times I tell clients to keep their current mortgage – and why I think they should keep what they have. Â Other times, I say yes, it does make sense to refinance and here is why. Â Talk to your loan officer and just make sure you aren’t wasting money with a refi. If something doesn’t sound right, talk to another loan officer! It doesn’t hurt to get a second opinion!
Leslie Vanderwerf, NMLS ID#335509, American Mortgage & Equity Consultants, Inc., An Equal Housing Lender, NMLS#150953 – Email – Website
