Refinancing Considerations for Homeowners

Refinancing Considerations for Homeowners
  • Opening Intro -

    With mortgage rates still flirting with historic lows, refinancing now can help you avoid higher rates later on when inflation inevitably becomes a factor.

    Interest rates have been held artificially low thanks to fed action, but few analysts believe that they'll stay this low for years, perhaps for just months to come.

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Refinancing your mortgage can save you money, enabling you to secure a lower rate that you can enjoy for the life of your loan. Not every consumer should refinance, however, therefore please keep in mind a few things as you weigh this option. We’ll examine the pros and cons of refinancing as we consider the who, what, when, where, why and how of a new home loan.

1. Will you stay or will you go? If you plan to stay in your home for at least the next two or three years, then refinancing may make sense. However, if you plan to sell your home within the next 24 months, you may not be able to recover the costs of refinancing, effectively ruling out this option for you.

2. How much can you save? Common wisdom says that if you can get a rate that is at least one percent lower than your current interest rate, then refinancing is worth considering. Especially if you plan to hold onto your home for many years. If the rate is less than one percent lower, you may still be able to save money. Use a loan calculator to determine your savings.

3. What is your credit score? Changes to lending rules enacted following the 2008 mortgage meltdown means that you may have a tougher time qualifying for a new loan, especially if your credit is not good. Visit Credit Sesame to check your score. If your score is below 700, then you may have difficulty refinancing.

4. When do you want to stop paying a mortgage? One aspect of refinancing is your loan’s length. Clearly, if you have owned a home for several years, you may not want to be placed in a 30-year mortgage again. Instead, look at your options and consider shorter term mortgages. Generally, the shorter the term, the lower the interest rate. Your monthly payments, however, may be higher.

5. Who has your current mortgage? Most definitely, shop around for a new mortgage. But, keep in mind that your current lender may want to keep your business. Your lender may give you a new loan and absorb some of your closing costs. Your rate may be slightly lower elsewhere, but fees can make that low-rate loan less attractive than refinancing with your current lender. Again, use a loan calculator.

6. Where can you look for a lender? New lenders seem like a dime a dozen, but you don’t want to deal with just anyone. As Smart Money advises, you may want to stay clear of lenders that solicit your business. Check with your current lender, ask your banker or credit union officer, and solicit bids online through a service such as Lending Tree.

Refinancing Considerations

If you’re not sure that refinancing is right for you, then talk with your financial advisor. You may find that independent feedback is the best advice for this all-important financial decision.

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Categories: Home Financing

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Auto Trends Magazine", an online publication. Matt covers campus, consumer, business and financial topics on various websites and weblogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".