Refinancing

Mortgage rates are historically volatile, moving both up and down in interest rate depending on numerous economic factors. When mortgage rates are low, many homeowners think about refinancing their mortgage. While refinancing a mortgage can present a number of choices, it is still a decision that should be carefully considered. When making this decision, the homeowner should factor in a variety of reasons why they may want to refinance and what their most important objective may be.

The most obvious reason to refinance is to reduce the interest rate on your loan in order to lower your monthly payment. Many homeowners will also look to reduce the term, or the number of years on their loan.

Conventional wisdom once dictated that in order for a home refinance to be worthwhile, the homeowner should reduce their current interest rate two percentage points lower than on their current mortgage. However, today’s low rates may make it possible to switch from a 30-year loan to a 15-year loan at about the same payment. In addition, if there is a first and second mortgage on a property, a rate and term refinance can be used to combine these into one lower payment.

Another common reason for refinancing is to take cash out. Once there is enough equity in the home, that equity can be accessed to take cash out for any personal reason. If you have high credit card balances, auto loans, personal loans or other high interest debt, you may want to consider a refinance to cash out and consolidate debt. The equity in the home can be used to pay off these balances at a lower interest rate. In fact, cash out refinances can be used to access money for any large expense including a wedding, college tuition, or even home improvements.

There are, of course, instances when it simply doesn’t make sense to refinance your loan. On a strict rate and term refinance, if the homeowner can only save a quarter or a half of a percentage point on the rate, it’s probably not worth the time and expense. The closing fees would outweigh any potential savings. The same may be true if the mortgage balance is almost completely paid off.

If you are considering making any major home improvements, be sure to find out the value of your home before refinancing. Home prices may have increased significantly enough over the past few years where you may be able to sell your property for a high profit which would allow you to upgrade to a new house.

There really is no absolute guideline as to when the right time to refinance a home may be. It has to be a decision based on interest rate as well as financial standing, lifestyle and personal preference. It is best to speak to an experienced mortgage consultant who can help you evaluate your options and help you make the best decision to meet your needs. Talk to a Mortgage Loan Officer to get details on refinancing your home.

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