Contributed by Zachary Adam
Is refinancing right for your home? It sounds like an easy solution to so many problems, especially if you bought your home when interest rates were high. But refinancing is not a magic bullet and there are times when it may not be your smartest bet. Here are some things to consider when you’re looking into refinancing.
In August of this year, mortgage rates hit a 3-year low as average rates on a 30-year mortgage dropped to about 3.7%. That got a lot of people thinking about whether it’s the right time to refinance. Does the process actually save you money and will it be worth your investment?
And when we say investment in terms of refinancing, we don’t mean the overall cost of your home. On paper, getting a lower mortgage rate always sounds like a great idea, but you still have to go through an entire mortgage process once again.
This means you have to pay closing costs, pre-paid items, appraisal fees, and attorney/title fees. And once you start paying off your newly refinanced mortgage with interest, it may take years for you to recoup your money. Before you decide to move forward, do the calculations to determine if this will really save you money long term.
You will also want to look at how long you’ve been paying your current loan and how much longer you intend to stay in that home. For example, if you have a 30-year mortgage and have made payments on it for 5 years, when you refinance to another 30-year mortgage, you essentially start over from the beginning.
There are options, such as refinancing in to a shorter-term loan. Or you may also want to consider how long you expect to live in your home. The average time most American homeowners spend in one home is just 10 years, so you can play around with that number if you expect to move again.
It’s also a good idea to take stock of your other financial goals. It may make more sense for you to invest in those rather than refinance your mortgage. The savings you get now with a refinanced mortgage may not pay off when your lifestyle changes along the way.
However, there are plenty of cases where refinancing may be a great choice, and one of our talented loan officers can help you determine what’s best for you.