When Is it Good to Refinance?
Refinancing a mortgage can save you a bundle of money. Refinancing can make a lot of financial sense when interest rates drop, but not all homeowners should refinance. There are several things to consider to determine if refinancing makes sense for you.
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Lower Interest Rate
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When the market offers a much lower interest rate than the rate of your mortgage, refinancing can save you money. Lower interest rates offer a starting point on which to base all other refinancing decisions.
Get Out of Adjustable Rate Mortgage
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If you currently have an adjustable rate mortgage (ARM), especially if it soon will adjust to a higher interest rate, refinancing to a lower fixed interest rate can offer a savings.
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Keeping the Home
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Refinancing only makes sense for homeowners who plan to keep a home long enough to recoup the closing costs associated with the new mortgage. How long it will take to recoup those costs depends on what those costs are.
Loan Consolidation
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If you have a second mortgage or home equity loan, in addition to a first mortgage, refinancing can offer an opportunity to consolidate all loans into one mortgage.
Extend the Loan
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For homeowners with short mortgage payback terms, such as a 15-year mortgage, refinancing to a 30-year mortgage can substantially reduce the monthly payment.
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