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There really isn't a process on figuring out when it should be done (because it never HAS to be done) but you could consider it if you can get a lower interest rate, need a lower payment, need a home equity loan or your financial situation has changed. If you're comfortable with how things are then there is no reason to change anything.

Due in part to the corona virus scare, now is one of the best times historically you could ever consider refinancing as rates are at almost unheard of lows.  Normally the criteria is if you can save at least 1.0 percentage point AND you plan on staying for at least 5-7 years, you will be ahead refinancing.

Keep in mind there are substantial fees involved.  Generally $3000 - $4000 on a $200,000 mortgage as an example.  These fees either have to be paid at close or (as long as you have enough equity in the house) they can be added to the mortgage.  But then your $200,000 mortgage is now $204,000. 

One thing to really consider right now is a 15 year mortgage vs 30.  The savings in interest is truly astounding.  If you can handle the payments (and they might not be much higher than your current mortgage, depending on rate savings) without a financial hardship or burden, you definitely need to do this.  The initial years of a 15 year mortgage show a significant larger paydown than the initial years of a new 30 year mortgage, so after that 5-7 years if you move you are going to be in a much better position.

Although every situation is different, I would recommend refinancing your mortgage if:

  • Current interest rates are at least 1 percent lower than your existing rate
  • You plan on staying in your home for another 5 years
  • You anticipate being approved for the refinance loan

Deciding when to refinance is no small decision, so don’t jump on the refinance band-wagon just because other people you know are doing it. Also keep track of recent trends, refinance rates, reviews from others, and overall look of the long term goal. Take some time to figure out what your total costs would be, what your new monthly payments would be, and whether or not it’s the right decision for you.

We refinanced our house twice, both times saved 2% and had to add in some closing costs, just did not have the $$ up front, a matter of pay me now or pay me later with an reduced amount of interest. To date we have never regretted this decision and have been in our house 20+ years. We have kept our credit scores in good standing so we could do this.

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