Are you looking to take advantage of a lower interest rate by refinancing your home, but wondering if it is the best decision? Here is what you need to know about refinancing your home to determine if it's right for you.
Will You At Least Break Even On The Refinance?
Be aware that it is simply not enough to have a lower rate on your mortgage to make it worthwhile since there are a lot of factors that need to be considered. Many people want to refinance their mortgage because it will save them money over time. This is often the case when they have a very high-interest rate and the new interest rate will allow them to save a significant amount of money on their mortgage.
However, it's important to consider all of the other costs involved with a refinance. You do pay additional closing costs on the mortgage, such as the origination fees to the lender, appraisals, and things of that nature. You'll want to see how long it will take you to break even with those costs. You can do this by calculating how much money you'll save per month, and dividing that by the closing costs. Will you plan on being in your home for enough time to break even? If you want to sell before then, refinancing may not be best.
Do You Want To Change The Terms?
Do you currently have a 30-year or adjustable-rate mortgage, and want to switch to a different type of mortgage? Refinancing is the only way to do it. Many people do this if they want to switch to a 15-year mortgage to pay off their mortgage faster, or because they are approaching the end of a fixed-rate period of an adjustable-rate mortgage and want to keep those predictable monthly payments.
Do You Want To Get Rid Of PMI?
Did you originally get an FHA mortgage that had private mortgage insurance for the life of the loan? Unlike a conventional mortgage, you can't get rid of PMI once you reach 20% equity in your home. The only way to get rid of PMI is to refinance and get a whole new loan, which can make refinancing attractive to many people. It's worth looking at the remaining total cost of your current loan with PMI, and what the total cost of the new loan will be to see which one will be cheaper.
For more information on mortgage refinancing, contact a professional near you.
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