When Should I Refinance?
Low-interest rates have many homeowners wondering if it’s a good time to refinance. Refinancing can save you a lot of money in the long term when done correctly. It’s important to consider the drawbacks as well. Here are some reasons why you might want to refinance, and a few things to be cautious of.

Reasons you may want to refinance:

1. To lower your monthly payment. If today’s interest rates are lower than when you purchased your home, refinancing to a lower rate will reduce your monthly payment down, freeing up cash to help with other bills, your children’s education, or to save towards retirement.

2. To pay off your mortgage earlier. A great way to use the money you save with a lower mortgage payment is to apply it right to your principle, which will help you pay your loan off earlier.

3. To take advantage of a better credit score. If your credit score has increased significantly since you bought your home, you may get a better loan if you refinance.

4. To save on total interest. For some, the desire to pay less interest overall makes refinancing an attractive option. Reducing the interest rate and/or the loan term will save you money long term.

5. To change loan types. If you have an adjustable-rate mortgage that has been increasing or is nearing the end of the fixed period, you may want to switch to a fixed-rate mortgage.

If you have extra cash on hand to make larger monthly payments, it may make sense to change to a 15-year mortgage so you can pay it off earlier.

6. To consolidate debt or take cash out. If you have built up equity in your home, you may be able to borrow against your home to obtain cash to pay off higher-interest debt, to make improvements on your home, or for things like your children’s education or medical expenses.

Be careful when borrowing against your home. If the cash you take out goes to increasing your debt rather than resolving it, then you could end up putting your home in jeopardy.

Don’t forget about the closing costs involved in refinancing. You will have fees associated with your new loan just like you did when you purchased your home, so remember to figure the closing costs when you do the math.

Also, be cautious about extending your loan term. If you refinance with a 30-year mortgage when you are 10-15 years or more into your current mortgage, you’ll end up paying way more in interest overall, and have extended your payments for many more years.

Of course, a mortgage lender is the best resource for answering your financing questions. If you need someone to talk to further, I’m happy to give you a referral.