If you’re a seasoned homeowner, you may have heard the term “refinancing” thrown around. But what exactly is refinancing, and is it right for you?
Let’s explore the ins and outs.
A Brief Explanation of Refinancing
With a refinancing, you pay off an old loan on your home and take out a new one, usually at a lower mortgage interest rate. To refinance, you will generally need to have equity in your home, a good credit rating, and steady income.
You can borrow a percentage of the equity to cover remodeling costs, debt consolidation, and college tuition.
It Costs to Refinance Your Home
It’s important to note that a refinance isn’t free. When you refinance, you will incur all the closing costs that go along with getting a new mortgage, so unless you’re doing extensive renovations and can get a mortgage interest rate at least two points below your current loan rate, you may want to select another financing option.
So why refinance? Many people flock to refinance while mortgage interest rates are low, particularly when rates are about two percentage points below their existing home loans.
The Best (And Worst) Time Take Out a New Loan
Other factors, like when to finance, will depend on how long you plan to hold on to your home and whether you have to pay considerable fees to refinance. It will also depend on how far along you are in paying off your current mortgage.
If you expect to sell your home relatively soon, you’re not likely to recoup the costs you incurred to refinance. And if you are more than halfway through paying your current mortgage, you probably will gain little by refinancing.
However, if you are going to own your home for at least another five years, that is probably long enough to recoup any refinancing costs and realize real savings as a result of lowering your monthly payment.
Contact your lender, and its competitors, before you refinance.
Deciding Whether to Refinance? Let’s Talk
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