Why Refinance?

There are many reasons to refinance, but here are three of the most common ones:

  1. Lower your interest rate and payment – This is the most popular reason. If you have a 5% interest rate or higher, it might be worth seeing if you can take advantage of the current lower interest rates, hovering below 4%, to reduce your monthly payment and overall cost of the loan.
  2. Shorten the term of your loan – If you have a 30-year loan, it may be advantageous to change it to a 15 or 20-year loan to pay off your mortgage sooner.
  3. Cash-out refinance – With home prices increasing, you might have enough equity to cash out and invest in something else, like your children’s education, a vacation home, or a new business.

How Much Will It Cost

Undoubtedly, there are costs involved with everything.  Refinancing is no different. Depending on the type of refinance, you should expect costs to run between 1-4% of the total loan amount.  There are possibilities for a no-cost refinance as well.  Typically, in this scenario, the lender picks up your costs.  This may or may not be the best scenario for you and you should discuss with your lender.  

With trends ranging from 5-7 years or longer for you to stay in your home, you should discuss with your lender the cost-benefit analysis of your loan.  For example, if you are saving $100/mo, and the cost to refinance is $1800, the net savings is $100/mo after a year and a half.  Of course, if you're living in your home for any time after that 18 months, then it makes perfect sense to save money and do the refinance.  

Contact A Lender What's My Home Worth

Now that you know how the math shakes out, think about how much longer you’d like to own your current home. If you plan to stay for more than 3 years, then maybe it is advantageous for you to refinance.

If, however, your current home does not fulfill your present needs, you might want to consider using your potential refinance costs for a down payment on a new move-up home. You will still get a lower interest rate than the one you have on your current house, and with the equity you’ve already built, you can finally purchase the home of your dreams.

Information for this post was shared from keepingcurrentmatters.com

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