Refinancing is something homeowners often consider a few years into their mortgage can be a great way to achieve better interest rates, lower monthly payments, and gain more desirable terms. However, depending on your specific situation, refinancing could do more harm than good. It does come with a host of new closing costs, terms and conditions that should be considered before signing on the dotted line. So, when exactly should you consider refinancing?
Dropping Interest Rates
The most frequent cause for refinancing is when interest rates drop. Based on trends in the global and national financial markets, Interest rates vary based on a variety of factors, but when they drop you can lower the cost you pay to borrow money for your home by refinancing. Doing so could reduce your monthly payments and save you thousands over the course of your loan. If interest rates aren’t going down, you still may be eligible for a better rate if your credit score has improved.
Rising Interest Rates on ARMs
For better or worse, Adjustable Rate Mortgages (ARM) leave you susceptible to market fluctuations. Periodic adjustments over time can eventually yield much higher rates than those available through a Fixed-Rate Mortgage. If you have an Adjustable Rate Mortgage (ARM) and you believe interest rates will continue to rise, refinancing to a Fixed-Rate Mortgage could eliminate any uncertainty about future interest rate hikes.
Consolidating Debt
Considering that most credit card interest rates are up in the double digits, refinancing your home and transferring your credit card balance to your mortgage is an effective way to pay off that debt with a much better interest rate.[JL1] Remember, interest paid on mortgages are tax deductible, interest on credit cards are not! Be cautious, this could be a slippery slope to continued debt if you’re unable to keep your credit card debt under control after you refinance.
Repairing and Upgrading with Cash Equity
Planning on building a deck, remodeling your kitchen or repairing your roof? Refinancing and tapping into your home equity is a common way to pay for those major expenses upfront. This is sometimes preferred because interest rates on mortgage loans are likely to be less than if borrowed from another source.
Keep in mind
Refinancing often requires the necessary closing cost of 3-6% of the loan’s principle[JL2]. It often takes years to recoup that initial cost with savings generated, so only consider refinancing if you plan to live in your home past the break-even point of refinancing. Before making any decisions, speak with a qualified loan expert to see if refinancing is right for you.
We’re here to help. Call Rock Mortgage today at 832-230-3067 or begin the process directly on our site. We’ll be in touch soon and look forward to working with you!
