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Is Refinancing Right For You?
Published on 10/29/2020
With all the buzz about mortgages being at all-time lows, many homeowners are considering refinancing their mortgages to take advantage of the current rates. However, before you make a decision, take a moment to evaluate the pros and cons to make sure this decision is best for you.
Consider the pros:
• Reduce the length of your mortgage. A 30-year mortgage may have made the most financial sense at the time that you bought your first home; however, over time financial situations can change. For example, your household income may have increased or perhaps you bought your home in a different market – when interest rates were higher. Some homeowners are looking to pay off their mortgage sooner to save on mortgage interest and get out of debt faster.
• Lower your monthly payment. According to research conducted by the National Bureau of Economic Research, average homeowners could save $160 or more per month by refinancing. Lower monthly payment means more money in your budget to put towards savings, debts and other expenses. You could even apply additional monies towards your mortgage payment and pay off your loan even sooner.*
• Use the equity in your home to take out cash. If your home value has risen and you have equity, you may consider a cash-out refinance to use for home improvements, to pay off debt or to fund a large purchase.
• Switch from an adjustable-rate to a fixed-rate mortgage. Switching to a fixed-rate mortgage can provide homeowners with peace of mind knowing that their monthly payments will not fluctuate.
• Consolidate first mortgage and home equity loans or lines. Simplify your finances by rolling your mortgage and home equity into a single monthly payment. Keep in mind, HELOCs generally have adjustable rates, so refinancing into a fixed-rate loan could potentially save you money and make it easier to budget.
Consider the cons:
• Cost of refinancing your mortgage. The number one con is that it costs to refinance a mortgage. In other words, you will pay closing costs such as origination fees, appraisal fees, title insurance and other closing fees. Refinancing can cost from two to six percent of the amount borrowed, depending on where you live and what financial institution you use. It is important to make sure that you’re saving enough to make it worth your while. Keep in mind that “no-cost” refinance options may save you from bringing money to the table; however, lenders generally charge a higher rate to compensate.
• Adding years to your mortgage. Refinancing into a similar loan term could extend your mortgage which might lower your payments, but it may postpone the day you own your home free and clear. Typically, if you choose a lower term, the rates will be better, which may shave off a few years without raising your monthly payment.
• Planning on Moving Or Paying Off Your Mortgage Too Soon. If you plan to move or pay off your mortgage within a few years, it may not make sense to refinance because you may not realize any significant savings within a short period of time.
• Getting too aggressive. Shaving off years of your mortgage may be really attractive; however, it is important that homeowners do not increase payments beyond what their budget can handle.
Need help deciding whether refinancing is right for you? Contact Orlando Credit Union and let our knowledgeable Mortgage specialists help you run the numbers.
* By refinancing your existing loan, your total finance charges may be higher over the life of the loan.
https://www.nber.org/digest/jan15/borrowers-forgo-billions-through-failure-refinance-mortgages
Consider the pros:
• Reduce the length of your mortgage. A 30-year mortgage may have made the most financial sense at the time that you bought your first home; however, over time financial situations can change. For example, your household income may have increased or perhaps you bought your home in a different market – when interest rates were higher. Some homeowners are looking to pay off their mortgage sooner to save on mortgage interest and get out of debt faster.
• Lower your monthly payment. According to research conducted by the National Bureau of Economic Research, average homeowners could save $160 or more per month by refinancing. Lower monthly payment means more money in your budget to put towards savings, debts and other expenses. You could even apply additional monies towards your mortgage payment and pay off your loan even sooner.*
• Use the equity in your home to take out cash. If your home value has risen and you have equity, you may consider a cash-out refinance to use for home improvements, to pay off debt or to fund a large purchase.
• Switch from an adjustable-rate to a fixed-rate mortgage. Switching to a fixed-rate mortgage can provide homeowners with peace of mind knowing that their monthly payments will not fluctuate.
• Consolidate first mortgage and home equity loans or lines. Simplify your finances by rolling your mortgage and home equity into a single monthly payment. Keep in mind, HELOCs generally have adjustable rates, so refinancing into a fixed-rate loan could potentially save you money and make it easier to budget.
Consider the cons:
• Cost of refinancing your mortgage. The number one con is that it costs to refinance a mortgage. In other words, you will pay closing costs such as origination fees, appraisal fees, title insurance and other closing fees. Refinancing can cost from two to six percent of the amount borrowed, depending on where you live and what financial institution you use. It is important to make sure that you’re saving enough to make it worth your while. Keep in mind that “no-cost” refinance options may save you from bringing money to the table; however, lenders generally charge a higher rate to compensate.
• Adding years to your mortgage. Refinancing into a similar loan term could extend your mortgage which might lower your payments, but it may postpone the day you own your home free and clear. Typically, if you choose a lower term, the rates will be better, which may shave off a few years without raising your monthly payment.
• Planning on Moving Or Paying Off Your Mortgage Too Soon. If you plan to move or pay off your mortgage within a few years, it may not make sense to refinance because you may not realize any significant savings within a short period of time.
• Getting too aggressive. Shaving off years of your mortgage may be really attractive; however, it is important that homeowners do not increase payments beyond what their budget can handle.
Need help deciding whether refinancing is right for you? Contact Orlando Credit Union and let our knowledgeable Mortgage specialists help you run the numbers.
* By refinancing your existing loan, your total finance charges may be higher over the life of the loan.
https://www.nber.org/digest/jan15/borrowers-forgo-billions-through-failure-refinance-mortgages