To refi or not to refi? That is the question. Only the answer isn’t always the same, and is entirely dependent on whom you ask. Don’t be surprised if a mortgage loan officer tells you that now is the best time to refinance your home, no matter when you happen to ask. Likewise, don’t be shocked if you hear financial experts and your best friends warning you away from doing so. Refinancing a mortgage can be a tricky proposition, especially if you’re in the process of moving or have just moved into a new home. If you’re being inundated with mixed signals and announcements about low interest rates and don’t know whether you should stay or go, consider the following.
Ask Yourself, “Why?”
One of the most important things to do to help you determine if refinancing is a good idea is to ask yourself what your motives are.
- If you already have a good thing going with your existing mortgage and are only considering refinancing so that you can lock in an even lower interest rate, it may not be worth it to go to the trouble. Remember, you’ll also have to pay lender fees and depending on how meager the spread between your current percentage and the one being offered, it may prove to not be worth your while.
- On the other hand, if you have an adjustable rate mortgage that’s threatening to rise, you could save a substantial amount of money in the long run if you refinance to a low-interest fixed rate. In this case refinancing will make an awful lot of sense.
When Not to Refinance
Sometimes, knowing when to refinance your mortgage is better answered by knowing when not to refinance. If any of the below scenarios ring true, it’s probably a very bad idea to refinance your mortgage.
- You don’t have at least 20 percent equity in your home. Most lenders don’t like to loan you more than 80 percent of what your home is worth, but they will. The only thing is, they’ll charge you a higher interest rate for your troubles and you’ll wind up losing out on the potential savings of a super-low fixed interest rate.
- You have lots of equity and are wanting to refinance your home so that you can get cash for nonessential things—such as motorcycles, plastic surgery or a three-week trip to the Bahamas. The only time it’s ever smart to refinance your home and make use of the spare cash is to pay off high-interest loans or to make improvements to your home that will increase its value. If you’ve got other ulterior motives, forget the refi.
When to Refinance
Ultimately, the decision about when to refinance is entirely up to you. Are there any hard and fast rules that say you should or shouldn’t refinance your mortgage if you’re planning on moving or have just moved into a new home? Not at all. Just make sure that if you do decide to refinance, you’ve thought everything through and are absolutely positive that doing so will be beneficial to you and won’t put you at risk of losing your home or owing far more than it’s worth.
|
