Are mortgage interest rates down? Terrific! Should you refinance? Maybe. There are quite a few factors that go into refinancing, so it is best to know ahead of time what you should keep in mind. Make sure you consider the following as shared by a personal injury lawyer who has seen cases affect refinancing before:
- How much equity do you have in your home? This will impact the type of mortgage you can obtain. If your original mortgage included the payment of private mortgage insurance (PMI), determine if your home has appreciated in value enough (or you have paid down on your current loan enough) to refinance without additional costs for PMI.
- What is your credit score? If it has improved since you took out your existing loan, you may qualify for a better rate. If it has gone down, you may not qualify for the best rates advertised, making refinancing less attractive.
- What fees will be connected to the refinance? Once you know, you can determine how long it will take to recover these costs against any payment savings you obtain. For example, if the refinance costs a total of $2,000 and your new payment will be $100 per month less than your existing payment, it will take 20 months to recoup the cost of the refinance. Refinancing with your current lender is often less expensive, so be sure to explore their offerings.
- How much time is left on your current mortgage? Most homeowners buy their homes with a 30-year mortgage. If you are 15 years into your current mortgage, and refinance the balance on the loan for another 30 years, you have effectively stretched the payment of your original debt over 45 years, increasing the interest you will pay over time, even if the refinance interest rate is lower. If you really want to save on interest, consider a shorter term on the refinance — 15 or 20 years, for example. If the interest rate is lower you could find your payments are still less than the current payment, and you are saving bundles of interest by not going out a full additional 30 years. If a lower payment is important for your circumstances, the longer term works, just be sure to consider the total amount of interest you will pay over that time.
Bottom line? If home mortgage rates currently being offered are sufficiently lower than your existing rate, if you plan on staying in your home long enough to recoup the costs of refinancing, and if your credit score and equity position do not negatively impact the rate or cost over time, a refinance may make sense.
Thank you to our friends at Willinger, Willinger & Bucci, PC for providing this article to be shared with you.
If you have further questions about refinancing, contact a mortgage professional near you. They will provide you with a customized consultation so that they may take a closer look at your specific case in order to determine the best course of action.
