As a homeowner, the major cause of a headache is the amount of interest paid on a mortgage program. Finding out that interest rates have dropped could come as good news. You might even be thinking of refinancing your mortgage. But, refinancing a mortgage comes with its ups and downs, especially in a low-interest situation. To know if refinancing at this particular season makes sense, you’ll need to pay close attention to some details.
Interest rate drop
Do not rush to calculate the percentage of the interest rate you wish to have when you refinance, says Altius Mortgage Group. Check to see how much you stand to save should you refinance. If you have a mortgage that is $100,000, it wouldn’t make sense to have a 1% reduction.
Time you plan on keeping the mortgage
When you consider refinancing, you’ll have to pay the closing costs just like you did when you were purchasing the home. If you’re only planning on selling your house after 2 years, you may not break even by refinancing. Rolling the closing costs into your mortgage instead of paying them in advance only means that you’ll be paying interest. Factoring this expense in your calculation will help you determine if it’s worthwhile to refinance.
Refinancing on a short term
Refinancing a mortgage in which you have 20 years left on a new 30 year mortgage will not save you any money even if there are lower interest rates, Nevertheless, you can refinance a 20-year mortgage into a 15 year one substantially reduces the amount of interest rate you’re required to pay before you own the house.
When done properly, refinancing can have amazing benefits such as increasing your long term net worth, meaning the amount you could have paid on interest could be used towards another financial goal. You can also have more money to work with on a monthly basis.
Mortgage refinance can give you a chance to correct a mistake made during your application of a previous loan. In fact, doing so might even allow you a better mortgage plan. To better understand the process, it is important to consult lending companies to know if refinancing will work for you.
