Refinance your mortgage?

SHOULD YOU REFINANCE?

There are a number of questions to ask yourself if you are considering refinancing your mortgage.

  • How much is my home worth? In some cases, it’s not worth it to refinance because homeowners owe more on their mortgage than what their house is worth. On the other hand, if you have owned your home for a long time, you probably have enough equity to make refinancing worthwhile. The first step should be an appraisal to find out how much your home is actually worth.

  • What can I get for a mortgage rate? Generally, it makes sense to refinance if the new rate is about 1% lower than your existing loan. If this is the case, you are likely to save enough in monthly payments to offset the closing costs. Although interest rates went up at the end of 2015, they are still at record lows, so depending on when you bought your home, you may be able to get a much better deal.
  • How much will I have to pay in closing costs? There are a number of costs associated with refinancing. They include an application fee, a title search, and attorney fees. It’s to your advantage to research these fees ahead of time. Sometimes it may be possible to reduce or eliminate closing costs by negotiating for a rebate in exchange for a slightly higher interest rate. Some lenders such as Union Savings Bank are advertising really low. Union Savings Bank, in particular, has a refinance closing cost of $250 plus recording fees and the rate on a 30 year loan is about 3.375% right now.

Use a Calculator

To find out if refinancing makes sense for you, use this calculator. Based on your current mortgage situation and interest rate, you can see if refinancing will save you money and/or how long it will take to recover the closing costs.

BENEFITS

Benefit vs Cost comparison on hand
Benefit vs Cost comparison on hand

There are many potential benefits to refinancing, including:

  • A lower monthly payment
  • Avoiding  a “balloon payment” at the end of the term of your current mortgage
  • Eliminating private mortgage insurance
  • Cashing out some of your home equity

In fact, several years ago the National Bureau of Economic Research found that homeowners were losing billions of dollars in possible savings by not refinancing.

Take the time to thoroughly investigate your options about refinancing your home. Even if the time is not right yet, at least you will know what to do to prepare. Maybe you need to repair your credit or pay down some of your mortgage. Either way, knowledge is power when it comes to making decisions about mortgage refinancing.

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