Should you refinance your mortgage?

The article concerns the following question – Should you refinance your mortgage? There are times when a mortgage refinance is necessary, and it’s important to take your financial situation into consideration when you’re looking to refinance. This guide will take a look at some of the reasons why you should consider refinancing.

Should you refinance your mortgage

*Refinancing can lower your monthly payment. If rates are lower now than they were when you originally financed, or if you have an adjustable rate mortgage with a lower-than-current rate, the payment will decrease if the term is not shortened. Refinancing can put money in your pocket now- that can be used for vacations, college tuition, or any other purpose. In most cases, the new loan’s closing costs and other fees can be added to the loan amount.

A reduction of a half-percent can make a big difference in your monthly payment. Fees for a refinance can equal thousands of dollars, so before you sign, be sure that you will be in the home long enough to recoup what you’ve spent. For instance, if the closing costs are $2,000 and the new loan comes with an $80 monthly payment reduction, you’ll have to stay in the home for two years to even it up. If the interest rate is lower than the mortgage rate by 2%, refinancing is something to think about, and if you have good credit, you can reduce your closing costs even further.

*A refinance can help improve your credit score. If your score has improved due to timely mortgage payments, you may be able to refinance for a lower monthly payment. A cash-out refinancing may help to consolidate your debt, which will further improve your credit score. If you go this route, you can use the money from the refinance to pay off your bills, effectively putting the debt all into one place. Mostly, mortgage rates are lower than those of credit cards, so your monthly bill payment will decrease and your interest paid will be a tax deduction.

*If you have an adjustable rate mortgage, refinancing may be a good idea. If you financed when rates were low, and now they are on the rise, refinancing to a fixed-rate mortgage could save you money. If you bought your home, not intending to stay long-term but then changed your mind, refinancing out of the adjustable rate mortgage is a wise decision.

Refinancing benefits largely depend on the term of your mortgage. If you are two decades into a 30-year mortgage, proceed cautiously. Taking out a mortgage at that time will only reduce your equity if you borrow more than the balance you carry. If you’ve paid more than half of the balance of the mortgage, refinancing won’t save you anything, even if you do lock in a lower rate. There are advantages and disadvantages to refinancing, and only you can decide whether or not you should refinance your mortgage.

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