If you own a home, you almost certainly have a monthly mortgage payment. And, if you have a monthly mortgage payment, you’ve likely asked yourself that nagging, ever-present property-ownership question, “Should I refinance my home?” It’s a simple question with a complex answer that’s different for everyone. Yet, there are several common indicators that can help you determine whether a home refinance will save you money. Here are five factors to consider before refinancing your home.
Even with the economy improving, interest rates are still relatively low. If you feel your interest rate is too high, it’s worth talking to a mortgage specialist to see if you save money with a refinance. Of course, refinancing just to get a lower interest rate won’t always save you money. There are closing costs associated with a refinance, and it’s important to ensure that you’ll be able to recoup those costs over the life of your loan.
Not all home loans are created equal. Some come with adjustable interest rates, while others have additional insurance costs. If you feel your loan is the wrong fit, or you’d like to see if you can qualify for a more traditional loan, talk with a mortgage specialist. Additionally, if you’d like to remove or add borrowers, refinancing can make a lot of sense.
Some homeowners refinance simply to pay off their loans at a faster rate. Many mortgages come with a 30-year term, and over the life of the loan interest payments pile up. Refinancing for a shorter term, say 15 years, reduces the total interest paid, and increases the dollars you put toward the principle amount of your loan every month. In short, if you can afford to make the monthly payments, a shorter-term loan is usually a good idea.
Again, one of the critical questions to ask when considering a home refinance is whether the savings will outweigh the costs. Even if a refinance will save you money compared to your original payment, if you’re not planning to stay in your home much longer, it might not be the right move. Talk with your mortgage specialist to calculate the breakeven point (the length of time it will take to recoup your costs) of a refinance. In addition, if you’ve lived in your home for a while, and you’re close to paying off your existing mortgage, a refinance may not be the best option.
If you have other debts that carry hefty interest rates, and refinancing your home otherwise makes financial sense, it may be wise to consider consolidating your debt. Replacing high-interest loans with a low-interest mortgage while reducing the number of monthly payments you have can be a great way to save money. Just make sure you don’t go out and accrue high-interest debt again.
At the end of the day, it’s all about saving money. If you’ve been wondering whether a mortgage refinance makes sense for you, the next logical step is to speak with a mortgage specialist. Under the right circumstances, a home refinance might be just the right move to achieve a more secure financial future.
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