Best Time to Refinance Your Mortgage
Refinancing your mortgage could save you a
significant amount of money, shorten the time until your loan is paid off, or
increase your money stream. This is particularly true if you bought your home
during a time when rates were remarkably high or have a variable rate mortgage
(ARM).
However, timing is a must when you’re asking
yourself, “Should I refinance my mortgage?” Refinancing comes with a new set of
closing costs, and sometimes the practical thing is to continue paying on your
existing loan. Other times, you might need cash for a major purchase, and
retrieving your home equity can make decent financial sense.
In the end, you need to decide what your goal is
before deciding on a solution. Learn more about finding the best time to
refinance your home.
Cash-out
refinances
Visualize that you use a cash-out refinance to pay
off credit card debt. On the pro side, you're decreasing the interest rate on
the credit card debt. On the con side, you may pay thousands more in interest
because you're taking up to 30 years to pay off the balance you shifted from
your credit card to your mortgage.
But the biggest risk in this setting is in altering
an unsecured debt into a secured debt. Miss your credit card payments, and you
get nasty calls from debt collectors and a lower credit score.
Failure mortgage payments, and you can lose your
home to foreclosure. Home equity debt that's added to the refinanced mortgage
always was secured debt.
Risks of Refinancing your Home?
One of the major risks of refinancing your home
comes from possible disadvantages you may experience as a result of paying down
your remaining mortgage with your line of home equity credit. In most mortgage engagements
there is a establishment that allows the mortgage company to charge you a fee
for doing this, and these fees can amount to thousands of dollars. Before
deciding the agreement for refinancing, make sure it covers the penalty and is
still worthwhile.
Along these same lines, there are extra fees to be
aware of before refinancing. These costs include paying for an attorney to assure
you are getting the most valuable deal possible and handle paperwork you might
not feel at ease filling out, and bank fees. To offset or avoid entirely these
bank fees, it is best to shop around or wait for low fee or free refinancing.
Compared to the amount of money you may be getting from your new line of
credit, but saving thousands of dollars in the long run is always worth
considering.
Not Sure if You Should Refinance?
Run the calculator to see if refinancing makes sense
for you. Our mortgage refinance calculator shows how far you can save securing
in lower rates.
