Have you been tempted to refinance your home due to how low interest rates currently are? If so, it will help to ask yourself the following 4 things to determine if a home refinance is worth it.
How Much Will Your Interest Rate Drop?
It is not always worth getting a refinance just because interest rates are slightly lower. The reduction in interest rate must be significant enough to justify going through the refinancing process and starting your mortgage over again. This really depends on how much is left on your current mortgage and how much you can see yourself saving over time. For example, a half a percent drop in your interest rate may not be worth it, but a full 1 percent drop would be. It will help to work with your lender to determine how much refinancing can save and when it will be worth it.
Will You Shorten Your Mortgage?
If you started with a 30-year mortgage and wanted to refinance 7 years into it, this means that you could potentially take 37 years to pay off your mortgage if you refinance with a similar length mortgage. It is worth looking at the mortgage products available when you refinance to determine if you will make the mortgage longer or shorter.
For example, a 15-year mortgage at a lower interest rate may make your monthly payments slightly higher but allows you to finish your mortgage in less time and save money on interest. It's even possible for your lender to offer you a more flexible mortgage product, such as one that is for 10 or 20 years.
What Is Your Goal?
You should also determine if your goal is to pay less per month to make your mortgage more affordable, or if it is more important to pay less over the entire length of your mortgage. This can make a huge difference when deciding on a refinance, since it may not always be cheaper over the length of the mortgage. If you're struggling to get by and simply need a lower monthly payment, a refinance could be a great choice for you.
When Will You Break Even?
Refinancing starts the mortgage amortization process over again, meaning that the first few years your payment is mostly interest rather than principal. It is worth figuring out when you'll break even on your refinance and at what point you start saving money. Do you plan to sell your home before that point? If so, it may not be worth it to refinance.
For more information, contact a company that helps with mortgage refinancing.Share
3 March 2021
I always wanted to buy my own home and after saving enough money for a down payment, I decided that it was time. Before I started looking at houses, I talked with a loan officer about financing. I wanted to know how much money I could borrow so I could look at houses in that price range. I was very happy after my meeting at the loan company and I was ready to start house hunting. My name is Jarod Spangler and I'm now a homeowner. If you have the dream of owning your own home, I think you'll find my blog of help to you. I've documented my journey of saving money, securing a loan and purchasing a house. To help you become a homeowner too, I'm offering advice and tips of things that I've learned along the way.