Should You Refinance?

The Fed reduced rates once again this week.  This usually causes many people to wonder… should I refinance my mortgage?

Refinancing offers many benefits but if you’re considering it, there are some things you need to know.  Let’s take a look at the benefits first, then answer a couple of questions you might have about the process. 

Benefits of refinancing:

#1:  Save money.  If your mortgage is currently at a high interest rate, now might be a good time to refinance at a lower rate.  Refinancing not only reduces your monthly payment, but could save you thousands in interest over the life of your loan. 

#2:  Improve your cash flow.  If you’re able to refinance at a lower rate, you will lower your monthly mortgage payments and have more cash at the end of the month to use towards other goals/bills.   

#3:  Consolidate your debt.  If you have credit card debt, you may be able to consolidate your debts.  Your refinanced interest rate is probably much less than your credit card or loan interest rates.  You’ll save money in the long run by not paying as much interest. 

#4:  Gives you flexibility and extra money in your pocket.  Are you looking to take on a large remodeling project, or do you have children going to college soon?  Refinancing to a Line of Credit loan or a home equity loan will give you extra cash in your wallet and the financial flexibility you’re looking for.

The general rule of thumb when considering refinancing is that if you can lower your interest rate by 2%, it’s a good idea.  There are always fees and closing costs that need to be considered as well as how long you plan on staying in your home. 

Here are some of the drawbacks to refinancing:

If you’re unable to at least break even then refinancing your mortgage will cost you money.  Your break even point is determined by how long you need to live in your home after you refinance in order to recover the closing costs you paid to refinance.  Also consider any loss of tax savings and the interest you will make on any investments you make with the money from your refinancing.  Don’t forget to calculate closing costs and application fees into your break even point as well. 

Refinancing can be a good option for many.  However, it is important to crunch the numbers before you decide.  Additionally, it is important to find a mortgage company that you’re comfortable with and trust.  Research begins online but don’t feel afraid to pick up the phone and give a lender a call.  It’s often easier to get a feel about a company when you can talk to them in person.

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