Are You Thinking About Refinancing Your Home?
Sometimes, refinancing your home makes perfect sense, especially if interest rates are considerably lower now than when you bought your home. However, there are also times when refinancing your home is not a good solution. So, how are you supposed to decide which option is best for you? This guide will help with your decision.
Determine Your Goals
Hopefully, if you are considering refinancing your home, you have some goals in mind. Some decide to do it because others talk so highly of their experience; it just seems like the right thing to do. If you don’t have a reason, don’t do it. There are a few reasons that tend to be behind refinancing.
* Lower Rate – Reducing the interest rate is the most popular reason people refinance. If rates are lower than when you purchased it can make sense to refinance.
* Reduced Payment – You might assume that refinancing is always going to leave you with a lower payment. This is not true. Some people are eager to get a lower interest rate, but don’t want a lengthy term again, so they opt for a shorter 15-year option instead. If you need a lower payment that will be more comfortable within your budget, you want a longer term.
* Debt Consolidation – If you have a mortgage, as well as a home equity loan, refinancing with both loans combined could reduce your payment.
* Major Expense – Sometimes, you need a lump sum of money. Maybe you want to invest in an opportunity, buy a second home, pay for a wedding or college tuition for one of your kids, or help a family member having a financial crisis. If this is the case, consider other options first.
* Lock in a Fixed Rate – If you have had an adjustable-rate mortgage for a few years now, and you are starting to see changes in the market it might be time to lock in a fixed rate before you are stuck with a high one.
Cash Out, or Not?
Do you plan on going with standard refinancing or are you looking for a cash out option? Some refinance specifically for the cash option, but others are not really sure if they should take the equity and invest it, or not. Only you can decide this. Keep in mind that cash out options have higher rates.
Type and Term of Mortgage
If you know you will want to sell in a few years when your last teen goes to college, an adjustable-rate can make sense. You will be out of the mortgage before any significant changes take place in the market. However, if you plan on living there a while consider going with a fixed rate. Even though it will be slightly higher, the security is priceless.
Deciding if you should refinance takes careful consideration. Make sure you are doing it for the right reason, and that it is the only option to reach your goal. Also, keep in mind that you will have to pay closing costs again.