Should I Refinance My Home?

With the recent lower interest rates, many homeowners arewondering if they should refinance.

To decide if refinancing is the best option for your family,start by asking yourself these questions:

Why do you want to refinance?

There are many reasons to refinance, but here are three of themost common ones:

1. Lower your interest rate andpayment – This is the most popular reason. Ifyou have a 5% interest rate or higher, it might be worth seeing ifyou can take advantage of the current lower interest rates,hovering below 4%, to reduce your monthly payment and overall costof the loan.
2. Shorten the term of your loan – Ifyou have a 30-year loan, it may be advantageous to change it to a15 or 20-year loan to pay off your mortgage sooner.
3. Cash-out refinance – With homeprices increasing, you might have enough equity to cash out andinvest in something else, like your children’s education, avacation home, or a new business.

Once you know why you might want to refinance, ask yourself thenext question:

How much is it going to cost?

There are fees and closing costs involved in refinancing,and Lenders Network explains:

“If you were to refinance that loan into a new loan,total closing costs will run between 2%-4% of the loanamount.”

They also explain that there are options for no-cost refinanceloans, but be on the lookout:

“A no-cost refinance loan is when the lender pays theclosing costs for the borrower. However, you should be aware thatthe lender makes up this money from other aspects of the mortgage.Usually pay charging a slightly higher interest rate so they canmake the money back.”

If you’re comfortable with the costs of refinancing, thenask yourself one more question:

Is it worth it?

To answer this one, we’ll use an example. Let’sassume you have a $200,000 home loan. A 4% refinance cost will be$10,000. If you want to lower your interest rate from 6% to4%,  then refinancing is going to save you $244 per month.To break even ($10,000/$244), you need to continue owning your homefor over 40 months.

Now that you know how the math shakes out, think about how muchlonger you’d like to own your current home. If you plan tostay for more than 3 years, then maybe it is advantageous for youto refinance.

If, however, your current home does not fulfill your presentneeds, you might want to consider using your potential refinancecosts for a down payment on a new move-up home. You will still geta lower interest rate than the one you have on your current house,and with the equity you’ve already built, you can finallypurchase the home of your dreams.

Bottom Line

There are many opportunities for growth in the current realestate market. To find out what’s right for your family,let’s get together to help you understand your options andguide you toward the best decision.