When we look at lower interest rates and lower monthly costs, on the surface it would seem like a good idea to refinance your home mortgage. However, this is not necessarily the case. Refinancing your home mortgage comes with costs just like the costs incurred while getting a mortgage in the first place. You might save a little every month, but in the long run you could end up paying more in interest. But it could still be a good idea to refinance your home mortgage.
Here are some reasons why you might consider refinancing
– Reduce the amount you pay in interest
Refinancing to a lower interest rate might mean you pay less in interest over the entire period of your loan. If it truly saves you money over time, then refinancing would be a great move.
– Reduce monthly payments
By getting a lower interest rate or extending the duration of the loan you could reduce your monthly expenditure. However, be aware that doing this could lead to you paying more in the long run in interest.
– Stabilize your debt in one loan
Combining a mortgage and home equity loan into one loan could help you save money. Even if it doesn’t, it will simplify your personal finances.
– Change the type of loan
Depending on the kind of loan you have, changing from an adjustable rate mortgage to a fixed rate mortgage would make sense.
While you might want to go ahead and refinance your mortgage, you need to make sure it is the right move for you. You could consider the following to make this decision
– You plan to live there in the long run
Refinancing your home when you plan on moving out in a year or two doesn’t make sense. Recovering the costs of refinancing is out of the picture and it will just add a lot of unnecessary work.
– Examine your current mortgage and potential new mortgage – make sure you are getting savings
Consider the closing costs of your current mortgage, the costs of refinancing and how long you plan on living there in order to make sure you are actually making a saving by refinancing.
If you still decide to go ahead and refinance, you need to be prepared. You will need:
– Good credit
A good credit report helps you get better rates and your refinancing has a higher chance of getting approved.
More equity in your home will make it easier for you to quality for a loan.
– Cash to pay closing costs
Make sure you have the cash at hand to pay off the closing costs of your current mortgage.