Why should I refinance?
Why should I refinance my home loan?
Knowing when and how to refinance your home loan is one of those decisions that with the right timing, can save you tens of thousands of dollars and boost your financial future. So, how do you know when the time is right? Here’s some quick advice.
You want to save money
When rates drop below the current rate on your home loan, it could be time to consider refinancing. The key word there is “could.” While a percentage point drop in the rate could save you money every month and thousands of dollars in interest payments over the life of the loan, there are a lot of factors to consider, including closing costs.
Those fees can add up fast. With loan application fees, title searches, an appraisal, and more, you could end up paying out several thousand dollars for closing costs. Do the math to determine how long it will take to break even on the additional costs versus the amount you’re saving every month. If you plan to move before that break-even point, a refinance might not be a great move.
Know your timeframe
The next 10 years are vital when it comes to refinancing your home. Maybe your job moves you around, or your family is quickly outgrowing your current house. Whatever the case, with some honesty about your situation, you’ll pick the right loan to meet your needs.
I plan to move within seven years. The next 10 years are vital when it comes to refinancing your home. Maybe your job moves you around, or your family is quickly outgrowing your current house. Whatever the case, with some honesty about your situation, you’ll pick the right loan to meet your needs.
I’ll be here for 10 years (at least). Choosing a short-term mortgage can help you pay more of your principle in less time while still enjoying the stability of a fixed rate and payment. These options include a 10-, 15- and 20-year fixed-rate mortgage.
I’m never leaving my house. Long-term stability is a wonderful thing. With a 30-year fixed-rate home loan, you’ll enjoy lower monthly payments. Plus, you can make extra payments now and then to pay off the loan sooner than expected.
You want to use your equity
If you’ve lived at your current address for some time, or if the value of homes in your area has seen a steady increase recently, you could have some equity. Some lenders will allow you to refinance a percentage of the full value of the home. That means the equity (the value minus what you still owe on the original mortgage) will be yours to spend, invest, or simply save in an emergency fund. Just be warned, a rise in the amount of your home loan could result in an increase in your monthly payments, depending on your rate.