We’ve been reporting the news about how the mortgage rates are at a low that we haven’t seen since the end of World War II. While that sounds all well and good, the question now is this: Is now a good time to refinance? If you’ve been thinking about taking advantage of the new low rates, here are some questions you should ask yourself first.
What is my reason for refinancing?
Many people have the idea that refinancing their mortgage reduces their debt. This isn’t exactly true. Refinancing your mortgage simply restructures your debt. But refinancing at a lower rate can reduce your payments. If you lock in today’s mortgage rates, your monthly payments would likely be less than what they are now. Refinancing can also shorten the term of your mortgage so you would be paying less in the long run. Finally, you could get extra cash now by refinancing or you could consolidate your debt. These are all good reasons for refinancing, but you should know why you want to refinance before you go through with it.
Are you eligible for refinancing at a lower rate?
Financial situations change over the years. You may be in a better financial position now than you were when you bought your house or it may be worse. There are several factors considered when determining your eligibility for refinancing, such as your loan-to-value ratio, your home’s current market value, your credit score and the paperwork you have available to provide to the bank.
Is refinancing best for me right now?
Mortgage experts suggest only refinancing if you can save at least two interest points over your current interest rate. Mortgage rates are just below five percent right now so if you have an 8% interest rate on your mortgage now, it may be a good idea to try to refinance if you are eligible. You should also consider the extra costs of refinancing, such as the closing costs for the new loan and more. Are you going to just break even by refinancing? If so, there is no point in going through all the trouble. Also, if you have had your mortgage loan for several years, you may not want to get another 30-year mortgage because you could be paying more in the long run.
Refinancing can be a great way to restructure your debt in such a way that makes it easier to make the monthly payments. And if you qualify for the current low mortgage rates, there probably won’t be a better time than now. But be sure to consider your options and the actual effect it will have on your loan. Tomorrow, we will tell you what you should look out for when choosing a refinancing company and what you should expect during the refinancing process.