Many people who purchase a home make payments without a thought about how they could reduce their biggest household expense. Taking the time to research the benefits of refinancing could lead to substantial savings for a homeowner, but it is important for homeowners to understand that refinancing is not always a wise financial move. Looking at the savings on a monthly basis only offers a snapshot of the real financial impact of refinancing, and getting a view of the full picture requires homeowners to learn more about how much they will pay in the long term.
When Should You Refinance?
Homeowners can assess their current situation when it comes to paying a home loan in order to determine whether a refinance is justified. Refinancing can be a lengthy process that requires some financial investment, so it is important to step back and evaluate the benefits and disadvantages of refinancing before making a decision.
Signs that it is time to refinance a mortgage
- The interest rate on a mortgage is higher than current market rates.
- There is an opportunity to refinance at a fixed rate of interest instead of dealing with a variable rate.
- Homeowners have large debts that they would like to consolidate as part of the refinance.
- The household income has significantly changed in a way that makes lower mortgage payments a must.
- Investment opportunities are available that require the homeowner to free up funds.
Indicators that a refinance would not make financial sense
- The homeowner is planning to move in the near future.
- Penalties for ending the current mortgage to refinance with a new mortgage are high.
- The homeowner’s credit rating has dropped significantly. Mortgage rates are higher for people who have fair or poor credit ratings.
- Household income comes from unpredictable sources that would not be considered to be stable by a lender.
- The total balance due on the mortgage is low, and the homeowner is not planning to refinance for the purpose of accessing money from the equity in the home.
Mortgage brokers can help individuals better understand whether refinancing is a good idea. It is understandable to want to pay less each month on a mortgage, but the costs of refinancing could outweigh the financial benefits that are enjoyed on a monthly basis. Mortgage professionals can help individuals calculate their costs and savings to come to a decision about refinancing, you may also check payments on a home loan calculator.
Image Courtesy of FreeDigitalPhotos.net