Should you refinance your Mortgage? The following tips and pointers can help.
Will You Be Staying in Your Home for a While?
One of the easiest ways to tell whether or not you should refinance your mortgage is by figuring out how long you plan to stay in your current home. When you refinance, you have to pay extra money upfront, in the form of closing costs and other fees. Refinancing only makes financial sense when you’ll recoup those fees before moving elsewhere. Otherwise, you’ll never be able to benefit from the lower interest rates or other perks of your refinancing arrangement.
What’s a reasonable window of time in which to recoup the fees from a mortgage refinance? The answer varies. Experts refer to this as the “break-even point.” You can calculate this by taking the total amount of money that it’s going to cost you to refinance and dividing it by the amount that you’ll save on your monthly house loan payment. From that, you’ll get the approximate total number of months that it will take you to make up those fees – in other words, your break-even point. If the total number of months falls comfortably within the period in which you plan on remaining in your home, refinancing should be a sound decision.
Is an Adjustable Rate About to Kick In?
Like many others, you may have signed up for an adjustable rate mortgage a few years ago. The upside of such a mortgage is that it locks you into a low fixed rate initially; the downside is that an adjustable rate kicks in eventually. When that occurs, you will have to deal with fluctuating monthly mortgage payments and potentially high interest rates. Refinancing now could spare you from that aggravation and expense.
Do You Have Major Home Remodeling Plans?
If you plan on staying in your home for some time and want to invest in it through a remodeling project, refinancing is a great way to get the cash to do so. This scenario makes the most sense when you have a reasonable amount of equity in your home.
Are Current Interest Rates More Competitive than Your Existing One?
Take a look at the terms and interest rate of your existing mortgage. If rates are currently at least one percent lower, refinancing could be a viable option. Again, this fact only holds water if you plan on staying in your current house for a decent period of time.
There’s no cut-and-dry way to determine whether or you should refinance or not. By taking the preceding information into consideration, though, you can make an educated and strategic decision.