When is the "RIGHT" Time to Refinance?
Refinancing your home can be a viable way to cut your costs
by lowering your monthly payment or interest rate,
consolidate your debts, or simply to raise cash for a large
purchase. It's important to consider several factors before
jumping on the refinancing bandwagon, however.
Questions To Ask
Yourself
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Have interest rates fallen 2% or more since you obtained
your original mortgage?
If interest rates have fallen more than 2% and you can
obtain a fixed rate loan, both the monthly interest and the
long range interest can be substantially reduced by
refinancing. If less than 2%, the savings is often not
enough to warrant refinancing.
■
Do you have an adjustable rate mortgage and need to
convert to a fixed rate mortgage because of the uncertainty
of future interest rates?
If interest rates are on the climb, it may be to your
benefit to lock in at today's rate rather than face a much
larger rate in the future.
■
Do you need the money for a necessary big expense such as
college tuition?
The need for a large expenditure is a very common reason to
refinance. College tuition, for instance, can be
overwhelming even for a financially well off family.
Investment in our children's future can far outweigh the
expense and time involved in refinancing.
■
Do you have large, non-mortgage debt at high interest
rates to pay off?
Debt consolidation is another common reason to
refinance. If you are paying very high interest rate on
large credit card balances, refinancing can be an effective
way to reduce the interest rate with a lower monthly
payment.
■
Would you be investing in home improvements that will
substantially increase the value of your home?
Necessary home improvements are another common reason to
refinance. If the improvements increases the value of your
home, the investment in a refinanced mortgage may be worth
your time.
There could be any number of possible reasons to refinance,
but you do have to study the situation first. Keep in mind
that all loans carry some cost. If your new mortgage costs
you $5000.00 to obtain, and it lowers your payment by $100 a
month, it will take you 5 years before the savings covers
the cost of the loan.
Also remember, that refinancing a 30 year mortgage after
you've already made payments for a number of years, will
mean that you would be paying for your home for that number
of years plus the term of the new loan.
Each homeowner must decide for themselves whether
refinancing can benefit them. It's important to talk openly
with your lender and ask questions. The web is a valuable
resource for researching mortgage and real estate related
topics. Make sure you have the knowledge you need before you
sign on the dotted line.
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