Is the Time Right to Refinance Your Home?

With the recent drop in interest rates you, like many homeowners, wonder if the time is right to refinance. In order to determine if refinancing your home is the best choice, you should begin by asking yourself these questions:

What is Your Goal in Refinancing?

There are several good reasons to refinance, but these are three of the most frequent:

Lower Interest Rates and Payments

 Lower rates and payments are the most popular reasons for refinancing. If your interest rate is 5% or more, it could be worth finding out if you could take advantage of the current drop in interest rates, that are holding at just below 4%. It would be an excellent way to cut your monthly payment and overall cost of the loan.

Reduce the Length of Your Loan

If you have a 30-year loan, refinancing it now could be beneficial.  If you adjust your loan to a 15 or 20-year loan it could be possible to pay off your mortgage sooner.

Cash Out or Refinance Your Loan

As home prices continue to increase, you may have enough equity to cash out and invest in other things. Your child’s college tuition, a vacation home, or start your own business.

What Will the Cost Be?

Fees and closing costs are involved in refinancing. If you to refinance your current loan into a new loan, total closing costs will run between 2% and 4% of the loan amount.

There are also options for no-cost refinance loans, but be aware of the potential drawbacks. With a no-cost refinance loan, the lender covers the closing costs for the borrower. The lender usually makes up their money on the back end from other aspects of the mortgage. Typically, they charge higher interests rate so they can recoup their money and make a profit.

Is it worth it?

Let’s take a look if refinancing is worth it.  If you have a $200,000 home loan, a 4% refinance cost will be  $10,000. If you want to drop your interest rate from 6% to 4%,  refinancing will save you $244 each month. In order to break even, ($10,000/$244), requires that you own your home for a period of over 40 months. Once you are familiar with how the numbers add up, consider how much longer you want to stay in your home.

If the answer is three years or more, it could be an opportune time for you to refinance. If the opposite is true, you might want to rethink using your potential refinance costs on a down payment on a home that is an improvement over your current one. You will still have a lower interest rate from the one currently on your house, and with the equity you’ve already accrued, you will have the ability to buy the home you’ve always wanted.

If you are in the greater Tampa Bay Area and are considering refinancing your home, give me a call at 813-915-6649 or email me at [email protected].  I have the experience and knowledge to advise you on whether the current real estate trends make it wise to refinance your home. Don’t make uninformed decisions, call me today.