When interest rates fall, you should think immediately of whether a home mortgage refinance will benefit you. There are pros and cons, depending on how long you have had your mortgage, your current terms and how much money it will give or save you for your current needs.
Shortening the Term of Your Mortgage
When interest rates are low, it is often wise to try to shorten the term of your mortgage by refinancing at the lower rate. When rates drop low enough, it is often not much more expensive to have a 15-year term than your current 30-year term. Refinancing will save you thousands of dollars in interest over the term of the loan.
Switching from an Adjustable to a Fixed Rate
Rates do not stay low forever, so if you can get a fixed rate while they are, you should. Remember that when rates rise, your adjustable rate and the payments on your mortgage can increase dramatically. If the cost of refinancing is not prohibitive, a fixed rate is always the best.
Lowering Your Payment
Lower mortgage payments can mean hundreds of dollars more in discretionary income each month to spend, invest or save as you wish. Look at your particular situation before deciding to refinance back to a new 30-year term, because that can wipe out much of the savings in interest over the life of the loan.
Getting Equity Out of Your House
It is tempting to take out the equity in your home for frivolous reasons, such as new furniture, a new wardrobe or a big-screen television, but this is not always wise. Remember that you are still paying interest on those items, which will wear out long before the mortgage is paid. A few good reasons to take out equity is to go back to school, start a business or invest in your present business. It may even be wise to refinance to make improvements to your home that will increase its value, such as a kitchen remodel.
Getting Help from a Refinance Professional
If you are not good at doing the math involved in refinancing, and do not want to make a costly mistake, talk to a local refinance professional about the pros and cons. They will lay it all out in black and white so you can make an informed decision that will benefit you and your family.
There are pros and cons to refinancing your mortgage. A local professional can help you work out the details so you can make the right financial decision.
About the author: Anica is a professional content and copywriter who graduated from the University of San Francisco. She loves dogs, the ocean, and anything outdoor-related. She was raised in a big family, so she's used to putting things to a vote. Also, cartwheels are her specialty. Anica writes on behalf of Assurance Financial Group, which provides refinancing and other real estate services.