Are you looking to save money on your bills? Now that the holidays are over, many people are realizing they may have overspent in the last couple of months. Others are hoping as interest rates come down, it may be time to refinance their home to lower their housing cost. There are many reasons to refinance and as we move into 2024, it may be time to look at it.
Should you refinance your home? It’s a major decision and you need to look at the pros and cons of refinancing. There can be many reasons to refinance, the major one is to lower your interest rate and monthly payment. Here are some things to consider when looking at a refi.
Lower interest rate and monthly payment – look at your current interest rate and see if rates have dropped enough to help you. Do you have an FHA loan? If so, you are probably paying mortgage insurance for the life of the loan. If you have enough equity, refinancing will help to lower your payment.
Reducing your loan term – maybe you have a 30 year mortgage and you really want to pay it off faster. You may want to look at going to a 15 or 20 year term. Depending on your interest rate, it may increase your payment, but you will save thousands in interest payments.
Do you have an adjustable rate loan? If so, you may want to look at refinancing to move to a fixed rate loan as interest rates come down. You do want to think about how long you will be in your home and when your mortgage will adjust.
Do you need extra cash? For some a cash out refinance makes sense. By using the equity in your home, you can look at paying off other debt, especially higher interest credit cards. This can free up your monthly cash flow and help you with your monthly expenses. Just remember if you are paying off credit cards, you don’t want to run up new balances on your cards. For some people, it may have to leave credit cards at home so you are not as tempted to use them. Maybe you need to combine a first mortgage and a home equity loan. As interest rates increased over the past couple of years, interest rates on your HELOC have gone up. Combining both mortgages may be a win for you.
What are the cons to think about with a refinance? The major con is your closing costs. When you refinance, you will need to pay closing costs again. They can be added to your mortgage with a refinance but now you are increasing what you owe. I always go over the cost of the refinance and what you are going to save. You want to look at how long it takes to recoup the cost. Maybe you need to wait to see if interest rates are going to drop more.
We are hearing that rates may come down more towards the end of 2024. No one knows for sure what will happen, but my suggestion for most of my clients is to wait until this summer and see what the trend is. We can rarely hit the bottom with interest rates, but hopefully you can get close! No one expects to see the interest rates from a couple years ago when we were in the 2’s and 3’s, but even getting back to the 5% range would be great!
If you have questions on refinancing, please reach out! I’m starting to hear from more clients about refinancing and for most, it doesn’t make sense yet. But we are hoping that time will be coming!