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Should You Refinance Your Mortgage?

Should You Refinance Your MortgageIf you are like many homeowners, you may have wondered if you should refinance your existing home mortgage.  While refinancing can be one of the best decisions that some homeowners can make, for some, it may not be the best time. And there are many reasons why some should wait.

Many people jump into refinancing because of the many benefits that it offers. They fail to consider the pros and cons that refinancing involves in their particular situation. The smart thing to do is consider all of the advantages and disadvantages before hastily making the decision to refinance.

Here are some questions you can ask yourself to decide whether or not refinancing is good for you at this time:

  • Is your credit score low? If your credit score is low due to bankruptcy or a default loan, your interest rates will probably be very high. Consider waiting a year or two to clear up your credit. Refinancing could be viable when your credit score improves.
  • Can you afford the closing costs? Refinancing cost money, as you probably already know. Closing costs can cost you thousands of dollars. You can include most of the closing costs in your loan, but this will cause our interest rate to be higher.
  • Are you moving in the next five years? Homeowners who plan to move within the next five years or so should not refinance. The reason? You want to break even from the closing costs, and if you’re moving, that simply won’t happen.
  • Are you refinancing to pay off debt from credit cards? If so, it is usually not a wise idea. You want to use the equity in your home for something other than credit card debt.
  • Is there a chance that you won’t save every month? If you wind up paying a higher monthly payment than your mortgage, it certainly isn’t worth it to refinance at this time. You want to save money on a long-term basis if you are refinancing.

Before you decide whether or not to refinance, you should weigh the pros and cons. Every financial situation is different, and even though rates are extremely low right now, it doesn’t mean that every homeowner should refinance. Even if refinancing is not a viable option now, there is a possibility that you can refinance at a later time down the road.

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