Determining Whether or Not You Should Refinance Your Mortgage
Making a Decision: Whether to Refinance or Not
With mortgage rates demonstrating a tendency to fall, it seems to make sense to refinance your fixed-rate mortgage at a lower rate. But like almost any other simple answer in finance, this one also has pitfalls. The trick is you may end up running into even more expense than you were hoping to save through this refinance. In order to avoid this, we offer you to make a balanced decision, taking into consideration the following factors.
Fixed-rate mortgage is generally considered the best term to finance the purchase of a home. But this is true, when the interest rates are going up, while your payment remains fixed. And if they are falling like today, you will find yourself throwing your money away, whereas you could pay considerably less.
With an adjustable rate mortgage you will pay higher rate than your initial one was, if mortgage rates are rising, whereas with falling mortgage rates you will still be paying more compared with a fixed-rate mortgage.
Closing Costs
Costs are one of the most important things to take into consideration, when you are trying to decide whether to refinance or not. First of all, think realistically how long you are going to live in that home. Then count the closing costs you will have to face in case you decide to refinance. Wtih these two figures at your hand, calculate how long it would take you to break even. For instance, your monthly mortgage payment decreases by $100 and your closing costs on the refinance make $3,000. This means that in order to break even on your refinance, you will have to stay in that house for 30 months.
New Terms
Another aspect to think about is that refinancing brings new terms: you can either extend your mortgage for another 30 years or cut this term shorter, signing up for a 15-year mortgage. If you have considerable number of years (10 or more) behind, opting for another 30-year mortgage will throw you back to the beginning. In this case refinancing to a 15-year seems more rational.
Credit history
Your credit history is another important factor you should take into consideration. The best rates will be accessible for you only if your credit history is good. Otherwise, if you have negative remarks on your report, you will not be provided a loan at really advantageous rates.
To Refinance or not to Refinance – That is the Question
With the fall of mortgage rates refinancing seems to be an absolutely right thing to do. Is it really so? This article will help you make the right decision.
