Many homeowners ask themselves: Should I refinance? The answer depends on many factors. Whether you want to pay off loans or improve your home, refinancing takes some time and patience. Before you decide to begin the process of refinancing, take some time to figure out if refinancing is right for you.
The decision to refinance should not be taken lightly. Don’t forget that refinancing involves closing costs and other charges that may be very expensive. You must decide if the cost of refinancing is worth it in the long run.
Why consider refinancing?
Under the right conditions, refinancing your home can certainly benefit you depending on your particular financial goals. Not only can you get a lower interest rate, you can switch from a 30-year mortgage to a 15-year mortgage. You may also be able to lower your monthly payment as well as build equity in your home faster. You can possibly get a fixed-rate loan and lock the rate for many years. Also, you will be able to cash equity to pay off other debts.
Some questions you should ask yourself before refinancing:
- Why are you refinancing? Sensible reasons include the desire to pay off high-interest loans, to get a lower interest rate or to obtain a shorter mortgage. Not-so-sensible reasons for refinancing involve a vacation or a frivolous, unnecessary purchase on a luxury item such as a brand new sports car. You don’t want to put yourself in further debt for something you don’t even need.
- Do you have a fixed or variable interest rate? This really depends on how long you plan to live in your house. Fixed rates are more desirable. As many homeowners agree to adjustable rate mortgages with low initial rates, the interest rate skyrockets and they have difficulty making their payments. Then the unfortunate process of foreclosure begins.
- Will there be any penalties? Many mortgage loans carry prepayment penalties, making refinancing a costly decision that isn’t really worth the process itself.
- How long are you planning on living in your home? If you are considering a move within the next five years or so, refinancing is more than likely not a good idea. It is really only feasible if you plan on staying put for a long time.
The bottom line? Avoid refinancing if you are going to have nothing to show for it. The point is that you want to come out ahead. Of course, it will take some time to break even, but if you will not experience additional savings, it will not be worth it to refinance. If you owe more than your house is worth, you probably should not consider refinancing. One of the best ways to find out if you qualify AND if it is worth it is to contact a mortgage broker and see what your options look like. Get a a free quote right now and see if you can qualify today. Also helpful, is a refinancing calculator, which can assist you in crunching the numbers to see if it is a feasible option.
Refinancing means that you need to know the value of your home. You can get a free home valuation report right here from Neighborhood IQ to find out your home’s worth to help you decide if refinancing is a good option for you and your finances.