Current mortgages are being offered at great low rates, but what if you already have one? You want to save money by refinancing, but now sure if it's the right move. While you might be getting a lower interest rate, extending your mortgage could end up actually costing you more! If refinancing is something you are considering, it's a great idea to talk to a mortgage professional to make sure you are actually saving yourself money in the long run and helping your finances and not hurting them with the fine print.
This article on Investopedia outlines some of the circumstances of refinancing.
When Does it Pay to Refinance Your Mortgage?
Mortgage interest is among a homeowner’s biggest expenses, so refinancing is a popular way to lower costs, but it doesn’t always make sense. Keep these considerations in mind if you’re exploring a new mortgage.
How much have rates dropped, and how much do you owe? A 1% fall means much more with a $500,000 mortgage than a $100,000 mortgage. The savings have to justify the effort and expenses of refinancing.
How long do you plan to keep the mortgage? If the plan is to sell soon, refinancing may end up costing money.
Can you refinance into a shorter term? If your mortgage has 20 years left, and you refinance into a 30-year deal, it can cost you in the long run, even with a lower rate. But if you refinance from a 30-year to a 15-year mortgage, the long-term savings could be large, especially if the new rate is lower.
Refinancing offers the opportunity to correct mistakes made on first mortgages. It can increase long-term worth, and it frees money for other investments and expenses.
But there are risks. Closing costs add up, especially when an unscrupulous lender charges unnecessary fees. Sometimes lenders charge higher interest rates on a refinanced mortgage because the deal contains no closing costs. And sometimes refinancing depletes a home’s equity.
Special refinancing programs include home affordable refinance, which helps homeowners whose houses have dropped in value. FHA streamline refinancing provides homeowners with lower monthly payments. And VA streamline refinancing helps veterans obtain lower interest rates.
To read the full article on Investopedia.com, click here.