With mortgage rates nearing three-year lows, many homeowners have started to refinance in droves — and it’s no wonder why.
When timed right, a refinance can lower your interest rates, decrease your monthly payments, or even offer you a lump sum of cash to cover college tuition or other expenses you might be expecting.
Still, refinancing isn’t right for everyone — nor is it always the best time.
Are you wondering if you should take advantage of today’s low interest rates and refinance your mortgage loan? Ask yourself these seven questions to find out:
1. What’s your current interest rate?
It’s important to know your current loan’s interest rate before refinancing. How does it compare to the current market rates? Look to Freddie Mac for an up-to-date reference point. If you’re hoping to reduce your monthly payment or the interest you pay, then it’s important to refinance when rates are below your current loan’s.
2. How long do you have left on the loan?
If you’re more than halfway toward paying off your mortgage loan, it’s probably not going to save you any money to refinance it. Generally, it’s best to refinance within the first 10 years of your loan, when the bulk of your payments is going toward interest.
3. How long do you plan to stay in the home?
Refinancing is a good choice if you’ll be in the home long enough to reach the break-even point — the point at which your savings outweigh the closing costs and other expenses you incurred to replace the loan. If you’re only going to be in the home a few more years, it’s most likely not in your best interest to refinance.
4. Do you need cash or have any big expenses you’re dealing with?
If you have big expenses coming up, like a wedding, car or college tuition — purchases you’d typically finance with a loan, credit card or other high-interest financial product, then a cash-out refinance might be a better option. This can allow you to finance these purchases with your mortgage (which offer lower interest rates), rather than a costly personal loan or credit card.
5. Do you have a number of high-interest credit cards, car loans and other debts?
By the same token, if you’re dealing with a lot of high-interest debt or credit card balances, then you may also consider a refinance to cover these. With a cash-out refinance, you can tap the equity in your home to pay off your other balances, essentially rolling them into your mortgage loan. You can then pay them down over time and at a lower interest rate.
6. How’s your credit?
It’s important to have an idea of what your credit profile looks like before applying for a refinance. Your credit score (and other credit factors) will influence the interest rate you’re able to get with your refinance, so if it’s not up to snuff, you might not stand to save much at all. Make sure your credit is in good standing before you apply for a refinance.
7. Can you afford the closing costs?
As with your first mortgage loan, there will be certain closing costs you’ll be responsible for when refinancing. Though some mortgage lenders allow you to finance these (i.e., roll them into your loan balance), this will mean a higher monthly payment and more interest paid over time. If you really want to save, you’re best off paying these up front, when your new loan closes. Generally, you can expect closing costs to clock in around 3 to 6 percent of your total loan balance.
Get More Help
Still not sure if it’s the right time for you to refinance? Get in touch with a loan officer at Premier Nationwide Lending today. We’re here to guide the way.
Premier Nationwide Lending is an Equal Housing Opportunity lender. Sponsored by NTFN, Inc. 700 State Highway 121 Bypass, Suite 100, Lewisville, TX 75067 NTFN NMLS 75333.