If you have owned your home for any length of time you have already been flooded with emails and snail mail trying to convince you to refi. Low Rates! Refinance NOW! Maybe you have considered it but you are wondering if a refinance is the right thing to do for you and your family’s financial future.
Well… we are going to break it down for you!
Refinancing your loan means you are replacing your existing loan with a new one. During a refinance, your new loan pays off your current debt (old loan) and is taken on by your new loan.
There are many great reasons why you would consider a refinance, including lowering your monthly payment, consolidating debt, shortening your loan terms, and renovating or repairing your home.
Before taking the leap into a refinance you must ask yourself these main questions to determine if a refinance might be right for you.
Homeowners with 20% or more equity can qualify for lower interest rates and will avoid paying mortgage insurance (PMI). However, depending on your financial situation there are loan products available that allow you to use the future value of your home after renovations. So even if you don’t have the traditionally accepted amount of equity it may be possible to pull out cash to fix-up your home.
Credit score and interest rates are directly related. Mortgage rates operate on a sliding scale with the lowest rates going to applicants with the highest credit scores of 720 and above. If your credit score and payment history have improved you may qualify for a better interest rate.
If you purchased your home with an interest-only or adjustable-rate mortgage (ARM) and the term of your loan is approaching the time, it will reset and move to a higher rate. Some people just ignore this fact and find themselves paying higher monthly mortgage bills! Unless you have money sitting around to spend, this will impact your budget some way or another. You could benefit greatly from refinancing to a fixed rate mortgage at this time.
It is important to consider how long you will be staying in your home. Calculating your break-even point will help you determine if a refinance is right for you. If you only plan on staying in your home for 2 years and your break-even point is 15 months, than a refinance will not save you money – it will end up costing you money.
The bottom line is, before you dive head first into refinancing, sit down with a knowledgeable and trusted mortgage advisor and do the math to see if you’d break even in a period of time that makes sense. It you feel the time might be right, it is definitely worth the conversation to see if you can benefit from a refinance. Getting the conversation going is important, because when it comes to refinancing it may not pay to wait.
Schedule a 15-minute consultation to see if you may benefit from a refinance.