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How can you know when, and if, refinancing is right for you? Here are five questions you can ask yourself when trying to decide:
- What are the current interest rates?
If you are a homeowner, and interest rates are down, you have probably at least considered refinancing your mortgage. There is an obvious relationship between lower interest rates and an increase in the number of people who refinance. Homeowners proved this last month when interest rates were at record lows, but this should not be the only consideration, when deciding whether to refinancing your home.
- What is your “break even point”?
Lowering your interest rate means most likely lowering your monthly payment, and who doesn’t want that? Don’t forget though, that a mortgage refinance loan is still a mortgage; there is an application process, an approval process, and there are costs involved. Closing costs, the cost of an appraisal, they all add up, and even if you are saving with a lower monthly payment, it can take a couple years to recoup those costs. This is something you’ll want to calculate ahead to time, to make sure the refinance is really worth it.
- How long are you planning to keep this home?
This ties into #2, because if you think you may move and sell your home before reaching your break even point, it may not be the best time to refinance. On the other hand, if you bought your home when rates were higher, and plan to stay for the long haul, refinancing could be the way to go. Consulting with a mortgage lender is the best way to compare rates, monthly payments, and to calculate your potential savings over time.
- How long have you had your mortgage?
If you have been paying your mortgage for a while, a greater percentage of your monthly payment is now being applied to the principal on the loan, rather than the interest, so refinancing later in the life of the loan means starting the amortization process all over again. You also want to consider whether refinancing is going to significantly extend the period of time over which you will be making mortgage payments.
- What is the value of your home?
Finally, you’ll have to have your home appraised, and that is because, if you owe more on your home than it is currently worth, you may not be eligible for a mortgage refinance at this point. You can do some preliminary research online to find out what homes in your area have sold for to get a general idea of what home values are like, and whether they are up or down.
Are you wondering if now is the time to refinance your mortgage? Visit goldenstatemortgage.com for current rates, or to consult with a professional or apply online.
additional sources:
The Federal Reserve Board
Nerd Wallet – “Mortgage Refinancing: How to Know When the Time Is Right”