When Should You Refinance Your House?
Buying a house is one of the biggest decisions you will make in your life. For most people, the only way to get a foot into the housing market is through a mortgage. 15, 20 or 30-year loans are a big, lasting decision to make and one that needs to be done carefully. If you find yourself making monthly payments and wondering if there’s a way you can help yourself out of it, you are in luck. Mortgage refinance is a common strategy used by thousands of people every year. But before you pull the trigger, you might want to check if it’s the right move for you.
When should you refinance your mortgage?
1. You can get a lower interest rate.
If you have seen an increase in your credit score, you may be eligible for a lower interest rate. If that sounds like your situation, a mortgage refinance might be a great choice to make. You can get a new loan with a smaller interest rate, pay off your old mortgage and start making lower payments each month – giving you more room to be financially independent.
2. You want to switch your interest rate.
There are two types of interest rates: fixed-rate and adjustable-rate. The names are self-explanatory: fixed-rate means you have the same interest rate for the duration of your loan, and adjustable-rate loans change your interest rate according to the market’s average. If your fixed rate is way over the market’s average, you should consider switching to an adjustable rate. If your credit score allows you to access a fixed rate below the market’s average, that’s the better loan to have. A mortgage lets you choose between either one, regardless of your previous decision.
3. You want to shorten your loan’s lifespan.
When you refinance your mortgage, you can choose to shorten your loan’s lifespan by making bigger monthly payments. You can transform a 30-year loan into a 15-year loan if you can afford it. People who have gotten financially better since their first mortgage can choose this option and cancel their loans quicker when they refinance.
4. You need to tap into your home equity.
When you refinance your mortgage, you have the option to “tap into” your home equity. This means you’ll get part of your mortgage in cash for you to use. A lot of people choose this option if they are short on cash to remodel their house or they need help with their kid’s college tuition. You need to keep in mind this option will make monthly payments bigger – and harder to pay.
A Caveat on Mortgage Refinance
Whether you decide to refinance your mortgage because you want a better interest rate, a shorter loan or you need cash upfront, you need to consider something: costs. When you take out a mortgage, you are paying a lot of fees and taxes. When you decide to refinance, you are taking a second mortgage to pay the first one. Because of that, you’ll have to pay mortgage fees once again. Sometimes, the costs outweigh the benefits of a second mortgage. A mortgage is a long-term decision; you need to consider every possibility and risk before you take one. Small costs on a 30-year loan can accumulate quickly and become a five-figure problem with little to no effort.
What are the alternatives?
If you can’t afford your monthly payments anymore, if you are tired of paying money to the bank, if you need the money or if you simply want to get out of the mortgage for whatever reason, downsizing is a great choice to make. Selling your house and moving to a smaller home can become a profitable move if done right.
If you feel that selling is the right move for you, contact us. We offer the best solutions the market can give, in real-time. You can also find out exactly how much we would offer you for your home by clicking the button below.