Is refinancing in 2017 a good decision for you? Mortgage rates continue to stay in the 4 percent level, but with recent political decisions influencing the housing industry, experts say it’s likely to push mortgage rates back up in the near future. For homeowners looking to refinance, now could be the perfect timing to process a re-mortgage before new highs kick in. If you are still unsure of the decision to get a refi, the following questions could help you make a smart decision and resolve the matter.
Why do I want to refinance?
There are various reasons why homeowners decide to refinance, the most common ones being:
a) to lower interest rate
If mortgage rates have plummeted to a significantly lower level compared to when you first got your home loan, refinancing to take advantage of the new rate could make sense. Lowering your interest could contribute to hundreds of dollars in savings on your monthly mortgage payments.
b) to change loan type
If you currently have a fixed rate mortgage and want to reduce your payments, you could refinance to an adjustable rate mortgage. Or, if you currently hold an adjustable rate mortgage and want to have the stability of fixed-rate mortgages, refinancing for the sole reason of changing the loan type is also viable.
c) to avoid balloon payments
If your mortgage type is arranged in such a way that you need to pay a large sum after a particular period of time, refinancing before this due, especially when you have experienced a current financial setback, could save you from the possible default that could result from your failure to pay the said sum.
d) to stop paying private mortgage insurance
Private mortgage insurance (PMI) is usually charged to borrowers who can’t afford the minimum down payment requirement on the home loan, or those who borrow more than 80 percent of their home’s sale price. PMI could prove to be expensive in the long run. If you refinance when you’ve earned enough equity on your home – usually when your home price has gone up – there is a possibility that you can eliminate having to pay for this fee.
e) to cash out on your home’s equity
Tapping into a home’s equity to use the money for some major financial issue such as home improvements, a medical emergency, or any other unexpected expense is a common reason to refinance. It’s a viable decision that you can take advantage of especially when home prices have gone up and gave you a leeway to push through your re-mortgage plans.
f) to consolidate debts
Consolidating your high-interest debtsinto your mortgage can help you save on interest and the hassle with having to keep up with different payments. This could also be your saving grace from damaging your credit due to payment failure or defaults.
Refinance only when it is necessary and if your needs prove to be significant. Remember that refinancing would restart your payment clock and would incur you some cost. Recognize the need first and estimate if the resulting new mortgage would sum up into benefits for you in the long run. Refinancing could be attractive, especially with today’s low interest rates, but it’s definitely not for everybody.
How is my current financial situation?
You cannot expect to get a refinance approval if your credit score is on a subprime level. Check your finances. Has it improved since you first took out your home loan? Do you have delayed payments in your debts recently? Is your credit score healthy? You can obtain a copy of your credit score from the three credit bureaus TransUnion, Equifax, and Experian. If your credit is healthy or has improved, that could be a good signal to pursue a refi.
How much will refinancing cost me?
If you ever decide to refi, factor in the cost that you need to pay for closing. Calculate the breakeven point to know the number of years that you need to bypass in order to recoup this cost. If you plan to move before you are able to recover the calculated cost, refinancing might not be a good option.
You can also use the closing cost to compare lender offers.
Why shouldn’t I refinance?
No matter how good the rates are, if counter-arguments are present to deter your refi plans, you should be open to reconsideration. There are various hurdles to refinancing: you could be moving in the next few years, you are too close to paying off your mortgage, or you are currently in a bad financial situation. These things are not to be ignored, else you risk losing money and treading into trouble.
The decision to refinance shouldn’t be based on a single factor alone. Evaluate yourself honestly and put things into perspective before rushing in to sign your refinance papers.