Refinancing Your House: Is it a Help or Hindrance in the Long Run?
Thursday, July 30, 2015, 6:00 AM | Leave Comment
According to CNN Money, millions of homeowners in America are paying far too much for their mortgage and would be better off if they refinanced.
For the average person, trying to decide if right now is the best time to refinance your mortgage can be a confusing decision.
You want to cut your bills, but will you be paying them longer when you refinance? What’s best for the long term?
If you’re wondering whether it’s the right step for you, here are some aspects to consider.
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Your Current Interest Rate
For those who took out their mortgage in late 2006, when the prime rate was at 8.25$, today’s low rate of 3.25% means that failing to refinance is taking a huge, unnecessary bite out of your budget.
On the other hand, if you already have a low interest and comfortable payments, refinancing for a longer repayment period could set you back considerably.
Use an FHA payment calculator to decide the best course of action if you’re unsure about your interest.
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Fees and Points
When considering whether or not to refinance, you need to take fees, closing costs, points, and other costs of your home into account.
There is little point in refinancing your mortgage if the cost of the transaction negates the potential savings.
If you’re looking into your refinance options, make sure to have an itemized list of all fees before you move forward.
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Your Credit Rating
While it’s true the prime interest rate is very low right now, you may not qualify for that low rate if your credit score has suffered since you bought your home.
You can check your credit reports for free to see if there is any erroneous information and your loan officer can pull your scores to see what interest rate you’d be offered.
If you’re overextended, have had late payments, or unpaid items, it’s possible that the rate you have now is the best you can expect until your score rises.
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The Length of the Loan
Unless you need to borrow heavily against your home to make necessary repairs, it just doesn’t make sense to refinance a loan that is nearing payoff.
For example, if you are due to pay off your loan in the next ten years, your payments are taking down the principal owed at an astonishing rate.
Refinancing now, especially if you choose a long loan term, is like repurchasing your house all over again. This is generally a terrible idea, if you can avoid it.
Deciding to refinance your home is a huge decision. By taking all of these factors into account, you can make the best decision for yourself, your future, and your family.
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