Many homeowners might think that refinancing your home is always a good idea, especially when interest rates are so low. For most homeowners, it could be true. But it may not be for everyone.
When to refinance:
It’s usually pretty easy to know when to refinance your mortgage. There are usually tangible, financial benefits such as the following …
When payments are reduced. Monthly housing payment is probably the single biggest reason for anyone to refinance. Lowering the cost and improving your cash flow is the key to many other positive results. Just make sure that the lower payment is the result of a lower rate rather than the loan term is extended.
When you can reduce the loan term. As long as you can afford the higher monthly payment, usually worth it when you can shorten the loan term. Reducing a loan from 25 years to 15 will knock 10 years of loan payments, which converts to significant savings even if you will have to pay more in the short term.
When the interest rate are significantly lower than what you are paying now. The lower interest rates refers not only to lower payments, but it also means that less of your payment goes to interest. With this provision, it is not only paying a debt (mortgage) faster, but is also increasing your asset, the value of your home.
When not to refinance:
.. No matter how low interest rates are, refinancing is not always the best move your personal circumstances are often more important. Some of these situations are:
When you only have a few years on the loan. Refinancing a loan that has 25 years may make sense, but a refinance with less than 10 years generally do not. You have to pay closing costs each time you refinance a loan, and pay to refinance a loan with only a few years is not the best use of resources. Use a mortgage amortization calculator to determine whether it would be better to increase your monthly payments capital rather than refinance the loan in full.
When closing costs is too high in relation to your loan. This applies especially to small mortgage loans, which well below $ 100,000. The last thing you want to do is add $ 5,000 in closing costs.
For debt consolidation. If the housing crisis has taught us anything, it is that we should not use our home as a place to secure the debt.
Low interest rates are only one measure of a benefit of refinancing your home. Make sure you have the whole picture of the situation when making the right decision for you.
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