Is It Time to Refinance?
Some economists predicted that mortgage rates would be higher by now compared to last year, but low interest rates continue to tempt homeowners to refinance. Deciding whether the time is right to apply for a mortgage refinance depends on three factors:
- How long you plan to stay in your home. If you know you will be moving in a year or two it may not make sense to pay the closing costs and other fees associated with refinancing.
- How much it will cost you to refinance. Lenders can give you a Good Faith Estimate of closing costs and other fees. Financial experts say a typical home refinance costs about 2% to 3% of the home loan amount.
- How long it will take you to recoup the costs. If you are saving $100 per month on your new home loan and it costs $2,000 to refinance, it will take 20 months before you have paid back the cost of the loan. After 20 months, the savings will be completely yours.
For most homeowners, the decision to refinance is based on saving money on their monthly payments. But some homeowners choose to refinance to a shorter loan so they can build equity faster and pay off their home loan completely within 15 years or sometimes even 10 years.
A Mortgage Refinance Can Lock in the Best Rate
Homeowners with adjustable rate mortgage loans or an interest-only home loan may want to gather refinancing information to see if they would be better off locking into a fixed-rate home loan. Most experts suggest that mortgage interest rates should rise a little bit by the end of 2010 and a little more in 2011. Locking in a lower rate now may cost a little more each month if you are paying only the interest on your loan or have a low adjustable rate, but plenty of homeowners prefer the security of knowing that their mortgage payments will stay the same for the entire loan. If you plan on staying in your home for the long term, a fixed-rate loan may be your best choice.
While the decision to refinance your home should be based on your short-term and long-term financial goals, you should also use a calculator to see how a mortgage refinance meets your needs.
