Refinancing a mortgage is essentially paying off the remaining balance on an existing home loan and then taking out a new mortgage loan, often at a lower interest rate. Keep in mind that just the way there are certain fees incurred with a mortgage loan, they are also fees associated with refinancing it. Be sure to consider this when shopping around for rates and before making your final decision. Ultimately, a good question to ask yourself is, “Do I plan to stay in this house long enough and will I save enough money in the lower monthly payments to warrant incurring these costs?” If they answer is yes, then now is a great time to explore this option.
Is it a good time to refinance?
Mortgage rates have dropped drastically since March due to the COVID-19 crisis. In fact, during the week of March 5th, mortgage rates fell to an all-time low. What does this mean for homeowners? If you’re thinking of refinancing in the near future, it’s best to move quickly so you can lock in the lowest possible rate.
How do I know if is refinance right for me?
While this is definitely an excellent time to consider refinancing, that doesn’t mean it is the right fit for everyone.
Two reasons a refinance might be a good fit for you:
1. Your credit is strong and you’d like to lower your monthly payments
The first, and most obvious, reason homeowners refinance their mortgage is to take advantage of a lower interest rate. The drive behind this reason might be a change in finances, personal life or simply the desire to save money. As mentioned, the current mortgage rates make this an excellent time to refinance into a lower interest rate.
Aside from reducing your monthly payments, a lower interest rate can also help you build more equity in your home sooner if you continue making the higher payment each month.
2. You’d like to shorten the life of your loan
People sometimes choose to refinance their mortgage because they want to finish paying off their loan sooner. If you have a mortgage that has an abnormally high interest rate but you can easily meet these payments, or you’ve been paying on you mortgage for some time already, consider refinancing to shorten your term – such as 10 or 15 year terms. You may be able to pay off your loan much quicker without changing your monthly payment much at all.
Two reasons a refinance might not be good for you:
1. You’re in debt
If you’re looking for the extra stash of cash each month to pull you out of debt, you probably shouldn’t be refinancing. Most people who refinance for this reason end up spending all the money they save, and then some. Without making any real changes to your spending habits, giving yourself extra money is only enabling more debt. While the intention is rooted in sound logic, unless you make an equally sound change in your spending habits, you’ll be right back to your present situation in very little time. However, if you have committed to reducing your expenses and not using credit to create more debt, a Home Equity loan can help you pay off existing debt at much lower rate if you have the required equity in your home.
2. You don’t plan on living in your home much longer.
Homeowners are often eager to get started on a refinance until they see what it will cost them. But, if you plan on moving within the next few years, the money you save might not break even with the costs you incur refinancing. It’s a good idea to familiarize yourself with these costs before you apply.
If you have further questions about refinancing your home, our dedicated team of real estate specialists is here to serve you and can be reached by calling (409) 898-3770 or you can send them an email. Curious about rates? Check them out here.