Should I Refinance My Mortgage Now?

February 04th, 2010

Refinancing may seem like a no-brainer if you have a good chunk of equity in your home, and the rate on your current home loan is above today’s low mortgage refinance rates. But savings from a lower mortgage rate isn’t the only thing you should consider when you refinance.

The decision to refinance your mortgage should take into account more factors than just the potential to save from a lower interest rate.Other factors also come into play, such as your personal living situation and costs to refinance. Here’s what you should take into account:

Should You Refinance?

• Retirement Proximity: Consider refinancing into a shorter term loan if retirement is around the corner. These loans come with lower rates than thirty year mortgages, and you can work on paying off your mortgage to lower your fixed living expenses once you’re no longer working.

• Staying Plans: How long do you plan to live in your home? If you plan to move in a few years, chances are you won’t have time to recover the costs of the refinance before you sell the house. Keep your mortgage, unless you plan to stay long enough for the refinance to pay for itself and produce savings.

• Predictability: Refinancing to a fixed rate from an adjustable rate mortgage makes sense if you plan to stay in your home, even if the refinance doesn’t lower your monthly payments. You’ll at least have the security of a fixed rate and won’t have to worry about an increasing payment.

• Refinance Costs: Your refinance may come with fees and points, which can add up to thousands of dollars. Check your lender’s Good Faith Estimate to learn the costs of refinancing. There can be fees for application, loan origination, discount points, appraisal, inspection, title and escrow, recording, and mortgage insurance. You may have the option of choosing a higher interest rate in exchange for the lender absorbing some or all of the costs.

• Cash-Out Refinance? Think twice about doing a cash-out refinance to pay for credit card debt. Yes, you’ll consolidate the debt at a lower interest rate, and you may save on taxes as well. The downside is that the debt goes from being unsecured, dischargeable in a bankruptcy, to being secured by your home and no longer dischargeable. You can also end up paying for items you charged on your credit card, such as clothing and restaurant meals, for 30 years–which means paying more interest even if your rate is lower.

The No-Brainer Refinance

Regardless of your timing or circumstances, there is one refinance that is always a good deal–when you can get a lower interest rate at no cost to you. If your lender can absorb your costs, and you can still get a better mortgage interest rate than you’re paying now, there is no reason not to refinance. Your savings starts from day one.

Refinancing Calculator

Get real mortgage quotes to compare potential new loans against your existing mortgage. You can get up to four free quotes to get an idea of available refinance rates. Then use the free online refinancing calculator to compare your existing mortgage with terms of a new loan.

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