Mortgage refinance is never something to be taken lightly. It is a big step, one that could impact your financial situation for years to come. Thus, it would be wise to know if this is a sound move.
Below, you’ll find a set of questions that will help you determine whether or not a refi could make those monthly mortgage payments easier.
How long do you plan to stay in the house?
Even if you plan to live in that house forever, there’s still a possibility that it won’t happen. You’d have to account for changes in your income or job situation that could necessitate a move. What if an emergency happens? Being transferred to another state or having a parent fall ill are both good to reasons to relocate.
The length of time you intend to stay in your home is a crucial factor. It will help determine whether the interest rate you’ll be getting with your new loan is enticing. If it is low enough to justify the costs and trouble of refinancing.
Another perspective you can look at is how many months of savings (on the reduced mortgage payment from a refinance) would it take to earn back the expenses on a new loan. Remember, your current mortgage will generally be paid off sooner than your new one.
Are other homes in your neighborhood increasing in value?
If this is not the case, then refinancing would mean that you’re just extending that period of indebtedness you’re in. In a neighborhood that may not deliver appreciation to justify getting a new loan, a refi may not be worth it.
What’s the condition of your home?
Think about the current condition of your home. Is the roof in need of repair? Is the hot water heater not functioning properly? If there are maintenance issues that you have to deal with, it’s better to address them first before talking to a lender about refinancing your mortgage.
How will a refi impact your cash reserves?
A responsible homeowner makes it a point to have good cash reserves. This money is used for property maintenance, repairs, and make mortgage payments in case of loss of income. Lowering your cash reserves to save a little bit every month on your mortgage isn’t exactly a good idea. Given the cost of money and difficulty for people with problematic finances to get a loan, cash reserves are critical in maintaining your home and protecting your investment in it.
Take the time to ponder on each of the questions above and answer them honestly. Your responses to the questions above should be able to tell you whether refinancing your existing mortgage is something viable.