Interest rates have fallen drastically in the past decade. For many homeowners, the decision to refinance becomes very real. You can lower your monthly payment, but there are closing fees to consider too. Read these tips to help you decide if it is a good time to refinance.
How Much Interest Are You Paying?
Generally, if you are not saving at least a full percent by refinancing it is not worth your time and fees you will be paying. If your current rate is 6.5 percent, and a home loan company is offering rates of 4.5 percent, the two percent decrease is worthwhile in the long run, so the refinance is something you should consider.
What Are the Closing Fees Going to Cost?
When you apply for a refinance, there are certain fees you will be paying. Many home loan companies will roll these fees into the refinance amount, but that can increase your loan amount by thousands of dollars. Fees you will be paying include an application fee, professional appraisal, credit checks, title search, legal fees, and then any points that are connected to the interest rate you are seeking. If you're preferred interest rates has two points attached to it, you pay two percent of the loan amount. This is why many borrowers prefer zero-point home loans.
How Much Time is Left on Your Current Mortgage?
If you only have 18 years left on your current mortgage, check into a 15-year home loan. Your monthly payment will be higher, but you'll save thousands in interest. Rates for 15-year home loans are much lower than those for 30-year loans.
What Type of Mortgage Do You Currently Have?
If you have an adjustable rate mortgage (ARM) and do not plan to move in the next few years, refinancing is a smart move. No one can predict how high rates will climb, but they have started a slow climb back up the scale. As rates increase, your mortgage increases. Suddenly, the mortgage payment you were comfortable making can increase to a point where it is a struggle to get the money together every month. Refinancing to a fixed rate mortgage is the best way to create a set mortgage amount that will not increase for the life of the loan, be it 15, 20, or 30 years.
Are You Considering Consolidating Debt?
One thing homeowners should consider is using a refinance to consolidate debt. If you have a mortgage and a home equity loan, by refinancing you'll roll these loans into one. This often saves a lot of money. You can also use the refinance to pay off all credit cards and lessen the amount of money you pay out every month.
