If your house payment is higher than you’d like it to be, or if you want to cash in on your home’s equity, you may be wondering if refinancing your mortgage might be a good option. However, the answer to the question “should I refinance my mortgage?” depends on your financial goals and the specifics of your current situation.
Some of the advantages of refinancing include:
- Lower monthly payment – When you refinance your home, you can often lower your interest rate and/or lengthen the term of your loan. This leads to a lower monthly payment.
- Access to your equity – If you opt for a cash-out refinance, you will walk out of closing with a lump sum that you can use to pay for home renovations, college tuition or other important expenses.
- A chance to improve loan terms – Refinancing your mortgage gives you an opportunity to improve the terms of your loan. For example, if you have an adjustable-rate mortgage, you may use your refinance to switch to a fixed-rate loan. Alternatively, if your budget allows, you may convert from a 30-year term to a 15-year term in order to save on interest and pay off your home faster.
Why refinancing may not be for you:
- Extra fees – According to the Federal Reserve Board, most refinances require you to pay closing costs. If you are refinancing in order to benefit from a lower interest rate, it may take months or even years for you to break even and start saving money.
- More interest overall – If your refinanced mortgage has a 30-year term, it will take you longer to pay off your home than it would have if you had kept your original loan. Even if you refinanced for a lower interest rate, you may still end up paying more total interest over the life of the loan.
Refinancing can definitely be beneficial. But it isn’t always the right choice for everyone. For example, if you plan to sell your home within the next two or three years, refinancing for a lower interest rate probably won’t save you any money. However, if you are planning to remain in the home, refinancing may allow you to improve your overall financial situation. In any case, we recommend that you talk with a mortgage professional to help you make the best decision for your particular situation.
If you have questions about whether refinancing is right for you, contact us at Starboard Financial. We are here to help you get things done – The Right Way!