A mortgage refinancing can be a strong financial move but is not for everyone. Refinancing your home loan can reduce your monthly payment significantly and save you thousands in interest over the course of your loan. Evaluating whether you should apply now for a mortgage refinance now or stick with your current loan is a decision with numerous factors to consider.
A mortgage refinancing is a powerful tool for homeowners who expect to stay in their current home for a few years and want to shorten a home loan to increase equity faster, to pull funds out of a home for large expenses, or to change the terms of their loan to save in interest charges thereby reducing their monthly payment. Refinancing is also useful for people who have an ARM or adjustable rate mortgage and want to convert a loan whose interest is at a fixed rate for the duration of the loan.
As a general rule, a mortgage refinance is worthwhile for you if rates have fallen 2 points lower than what you are currently paying. However, if you do not plan on staying in your current home for long, refinancing a 2 point difference might not be worthwhile for you due to the cost associated with a refinance. It typically takes 3 years to recoup the costs of a mortgage refinance and then begin saving money on the lower rate. If you expect to move in less than 3 years, you should hold off on a mortgage refinance.
There are several costs you can expect when refinancing, most of which can be rolled into your new loan. Fees can vary widely from lender to lender, and range from application and title fees to loan origination fees and points. To compare the costs of refinancing from one lender to another, ask the lender for a good faith estimate. A good faith estimate requires the lender to clearly itemize their fees you will incur as part of your mortgage refinance.
A mortgage refinancing can be a wise financial move for those who want to extricate themselves from a higher-rate mortgage or for those who wish to change the terms of their loans to build equity faster or pull some of their equity out to cover large expenses or as a debt consolidation tool. Evaluate your current situation and be a cautious consumer to ensure that you, not just your bank, benefits from a mortgage refinance.
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