Mortgage rates are no longer at record lows, far from it actually. Does that mean it’s not a good time to refinance? That depends.
Despite elevated mortgage rates, 1.3 million homeowners could still lower their current mortgage rate by 0.75% and save hundreds of dollars per month, according to the latest data provided by mortgage technology and data provider Black Knight.
There could be other reasons to refinance outside of lowering your interest rate. Some people may want to lower their monthly payments, pay off a mortgage faster, or tap into equity for cash with a cash-out refinance.
If you’re having trouble affording your monthly payments, a refinance can help ease the pressure. By refinancing to a longer loan term, for example, from a 15-year mortgage to a 30-year mortgage, you can lower your monthly payment. However, switching to a longer loan term will result in you paying more in interest over the life of the loan. Conversely, shortening your loan term with a refinance may raise your monthly payment, but you’ll save on interest in the long run and build equity in your home faster.
Now is a great time to refinance if you can get a lower interest rate than your current rate. Keep in mind that closing costs and other fees may cut into your savings, so always run the numbers yourself to see if it’s actually a good deal.
If you have an adjustable-rate mortgage, you probably know it can be unstable and may cost you more if rates rise significantly. Switching from a variable to a low, fixed-rate mortgage can be a good way of eliminating the possibility your rates could go up and get you locked into a favorable rate now while the opportunity exists.
Jill Schlesinger, CBS news analyst and author of “The Dumb Things Smart People Do With Their Money,” says when all is said and done, you will have to put in the work to make your refinance happen. If you’ve done your due diligence, though, a refinance can be your ticket to lower payments and increased financial stability, even in a time of economic turmoil.
Yes, there are costs involved with refinancing, unfortunately. From lawyer fees to paying for an appraisal, you’ll probably end up putting in anywhere from $1,000 to $5,000 to refinance your loan. If you don’t have that kind of money on hand, you can often roll the closing costs into the mortgage itself, which will increase your loan value or interest rate but require less cash upfront.
If you think you’re at risk of losing your income or are in another financially unstable situation, it might be better to hold off on refinancing until you’re certain you’ll be able to afford it.
If you are planning on moving in the next few years, a refinance is probably not your best option for saving money. You need to be in the home long enough to recoup the closing costs before you see the savings from refinancing, says Greg McBride, CFA, chief financial analyst for Bankrate.com. It may take years of lower payments to make back the amount you footed in closing costs. Refinancing is a long-term strategy, and its rewards are fully realized over years, not months.
If your goal for refinancing is to reduce your monthly payment to have more cash on hand, here are some other options for quick cash access that don’t involve a mortgage refinance:
There is no clear right or wrong answer for everyone to this question. Like any big financial decision, whether or not you should pursue a mortgage refinance depends a lot on your personal financial situation and goals. If you can lower your rate, your credit is reasonably good, your household has steady income, and you still owe a considerable amount on your current mortgage, then a refi is worth exploring. If you’re not sure, it costs nothing to call your local banker and ask for input to see whether you might benefit.
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