Understanding When and When Not to Refinance Your Home
Tuesday, October 6, 2015, 6:00 AM | Leave Comment
More and more often, you hear about your friends and neighbors refinancing their homes. Most do it to get a lower interest rate.
But when does refinancing represent a smart financial decision? And is there any situation where it would do more harm than good?
Below, you’ll find a basic outline of when you should and should not refinance.
When to Refinance Your Home
If you find yourself in any of the following situations, talk to your mortgage lender about refinancing.
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You Need a Lower Interest Rate
According to Sente Mortgage, a home loan company specializing in refinance in Austin, Texas, high interest rates can occur if the buyer doesn’t have established credit. Then later, when you have better credit, you wish you could redo your mortgage. Luckily, when you refinance, you get that kind of do-over. You can ease your budget and get that low rate.
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You Want to Shorten Your Loan’s Term
First-time homebuyers often have long loan terms as well, which means they’ll pay a lot in interest. You can save on interest costs by refinancing to shorten your loan term.
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You Would Like to Convert Between an Adjustable- and Fixed-Rate Mortgage
Sometimes the economy’s upturns and downturns make an adjustable-rate mortgage a headache. You can refinance to switch to a fixed-rate mortgage, which means that your rate will stay the same no matter what the economy does.
Then again, what if the economy changes in such a way that adjustable-rate mortgages usually have lower payments? You can change your fixed-rate mortgage into an adjustable one. Just know that if you refinance too often, you may lose credibility with your mortgage lender.
When to Not Refinance Your Home
The list above may apply to your situation. But if any of the scenarios below also apply to your life, talk to a financial advisor before you refinance. You may make a mistake if you refinance your home at this point.
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You Plan to Move in the Near Future
If you refinance now and move in the next couple years, you won’t have the refinanced mortgage long enough to benefit from it. So you should wait until you move.
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You Have Less-than-Ideal Credit
You can only get lower interest rates and shorter loan terms if you have good credit. So if your credit score is lower than you’d like, consider waiting to refinance until it improves.
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You Need to Consolidate Debts
Maybe you have many debts to resolve, and you want to consolidate them under one low-interest payment. So you think about refinancing your mortgage to put all those debts into one package. However, use caution if you decide to take this step, as you might have to give up your home if you still can’t pay what you owe.
If You Still Don’t Know Whether or Not to Refinance
If you still don’t know if you should refinance or not in your situation, talk to a mortgage expert. He or she can give you personalized guidance and help you make a more informed decision.
For further reading, there is a great article on Mortgage Refinancing: A Complete Guide from Consumer Solution which, I am sure, you will love to read and enjoy.
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