Refinancing Your Mortgage, Is Now The Right Time?
Making the decision to refinance your mortgage is a lot harder than deciding what to eat for lunch. There are a lot of factors that you should consider before you move forward with it. Even though rates are near an all time low right now, you need to weigh these other factors before jumping in. This article will discuss why right now might or might not be the perfect time for you to refinance.
Things to consider before refinancing
Closing costs – It typically costs anywhere from 2%-5% of the loan’s values in order to close on a home. This means that if you are looking to refinance for $300,000 your closing costs could be anywhere from $2,000-$5,000+. Although this seems like a lot of money at the time it is nothing compared to the savings that you can receive in a refinance if you plan to stay in that home for an extended period of time
Appraisal – in order to refinance your home you will first have to have it appraised. having your home re-appraised can greatly increase the amount of equity that you have in that home. If the value of your home has increased since your last appraisal you will gain that amount of increase in equity when you refinance.
Rate – Rate is typically the main thing that people look at when considering a refinance. This is because a rate drop of even 1% can save home owners a great deal of money. If you have a $250,000 loan and a rate of 4.25% APR on a 30 year term, decreasing that rate by 1% would save you $50,000 in interest over the life of the loan.
Releasing Equity – If you have built up equity in your home or your home’s Value has increased you can refinance your home for it’s overall value and all of the extra money would be yours to use as you please. This is not a recommended option for most people but this extra money can have a great impact for people in certain situations.
Mortgage Insurance – If you had to add mortgage insurance to your loan when you first received it, but you have built up enough equity in it (usually 20% of the home’s value), then you could remove the mortgage insurance by refinancing. This could save you anywhere form 0.5%-1.5%+ off of your initial rate.
Payoff date – Refinancing your mortgage will also reset your payoff date. If you were on a 30 year mortgage you could either move up the payoff date by refinancing it onto a 15 year mortgage or push it back by refinancing onto anther 30 year term.
Credit Score – The rate you will receive on a refinance is highly based off of your credit score. So if your credit score has increased since you first got the loan you may qualify for a better rate. Conversely if your credit score has decreased, your rate could be affected negatively.
So should you refinance?
When you are looking to refinance your home you should consider all of the above factors. Refinancing is not something that is beneficial for everyone at any given time, so it is important to apply all of these factors to your specific situation.
One more thing you should consider is your break even point. if refinancing your home will save you $200 a month and your closing costs are $4000, your break even point would come after 20 months. So if you think you may move in the next 20 months then refinancing may not make sense for you, but if you don’t plan on moving in the next two years then it does make sense!
All in all refinancing is a very big decision, one that you shouldn’t jump into without a lot of thought. If you weigh the above factors and refinancing makes sense to you, then we would be more than happy to guide you through the process. if you have any questions regarding your options please feel free to reach out to us!