While rates continue their roller coaster up and down headed south into previously unforeseen territory, many are asking this important question. But, how do you know you aren’t putting yourself farther behind while being enamored with the glitz of a shiny low rate that may be dull in the course of a year or two or even worse, next month? It starts with a series of questions you may need to ask of yourself and about your situation.
How long am I going to stay here?
Do I dream of having a home free of a mortgage and payment some day?
Can I accomplish other things by doing a refinance?
How much in equity will it cost if the costs are rolled in?
What are the list of benefits that come from taking this opportunity?
Is this perhaps a better time to sell and buy instead?
Don’t you hate it when the answers are convoluted? 🙂
Let me say this really clearly. A home is usually a person’s greatest financial asset, often is the biggest big ticket purchase a person makes personally and serves a huge purpose of being the four walls and a roof that protect you and your family. When you refinance your home, in many ways it is like buying that home all over again. Does that make more sense of the questions?
The sheen of the low rate can dull in a matter of hours, days or months in my experience, so it just can’t be all about the rate. That said, it is still an important consideration in the refinance decision. Below are some guides to help you navigate the decision that is yours alone.
- The rule of 2: if you have had your mortgage at least 2 years, are going to hold it at least 2 more years and can reduce by 2% then yes – do it!
- Don’t fit that box? If you can accomplish other things besides a slight rate reduction and remove mortgage insurance, take cash out or lower the term by some years then it’s probably a good idea.
- Does it ease your monthly burden that feels significant in your budget and you can recoup the costs in 48 months then that seems reasonable to refinance too.
A few other notes. The rates for cash out are generally a little higher. Also, there are lots of options on terms these days. Some lenders will let you do however many months that you want. This negates going backwards on your time of paying off and still getting the benefit of the new rate.
A mortgage professional can help you sort through the options and answer questions as you navigate making your best decision. Sometimes refinancing doesn’t make sense. If not, then you will know you are on the right track already.
Have helped buyers of all types and financial levels and worked on 1000's of loans.
There is always something new!
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