Refinancing Your Home: Is it Worth it?

When should you refinance your home?

With interest rates being at a record low right now, many are choosing to investigate their options to determine if it’s the right time for them. There are a lot of good reasons to refinance your mortgage; the two best being to cut back your monthly mortgage payment or to reduce the amount of interest you’ll pay in the long haul. Here are some pointers so help understand how to refinance and if it’s the right time for you.

• Talk to your financial advisor, your bank or a loan officer to determine if now is a good time for you to pursue some refinancing options and what your options are. Just because interest rates are low, doesn’t mean it’s a good personal choice to swap out your existing mortgage.
• Be sure to ask about all of the fees incurred (filing fee, appraisal, closing costs, etc.). These add up and can reach thousands of dollars in total. If the charges to file for a refinance are high in one place, they may be lower at another.
• Research what other banks or financing agencies are charging. Shop around to find a place that will give you the lowest cost to refinance. Compare the added costs to refinance with the potential savings earned to determine if it’s worth it for you.
•  Most advisors would say refinancing is worth it if you’re able to reduce your interest rate by at least 2%. If you aren’t able to get a 2% decrease, still consider if the potential savings are beneficial.
• There are two refinancing options: Rate and Term Refinancing or Cash-Out Refinancing.

The Cash-Out Refinancing option allows homeowners to change equity they’ve earned on their house into cash. Be cautious, this isn’t free money with no strings attached, but a loan that will need to be repaid. People choose this option if they are thinking of adding an addition to their home or another type of buildout. Cash-out refinancing may not save you money, but it does allow for a low-interest loan, as compared to a conventional loan, when you need it.

• If you don’t plan to reside in your current home for a long period of time, consider holding off on refinancing. However, if you plan to stay for several years it could be a smart choice.
• You’ll still need to know if you qualify for refinancing because approval requires all new underwriting. The loan officer will check your credit score, your debt to income ratio, equity and value of your home. As always, it is important to have good credit in order to refinance. An advisor or loan officer will be able to help you determine your eligibility and the requirements of the given lender.
• How long does it take to refinance? The time it takes from start to finish will depend on your lender. With the overall process being simplified in recent years because of the internet, most refinancing is complete in 30 days.

Similar to purchasing a home, refinancing can be complicated, but doesn’t have to be a painful process! The potential savings are worth putting forth the effort. Call your financial advisor or trusted loan officer to discuss options and get all your questions answered!