Should You Refinance a Home Mortgage?
A lot of people today assume that to refinance a home mortgage means to save thousands of dollars over the life of their loan and hundreds of dollars from their monthly payments. In many cases, they’re absolutely right!
A refinance can mean getting a lower interest rate on your mortgage which means paying less in interest charges over the life of your loan and also typically means a lower monthly payment as well. But for some, to refinance a home mortgage might mean losing equity either immediately or over time.
It might not be the best thing to do from a financial standpoint and might not save any money at all. So before you refinance a home mortgage, ask yourself why you want to do this and what your long-term plans are for your home.
Are you looking to save money now, save money over the life of your loan, or build up equity in the house as much as possible? These answers will help determine if you should refinance a home mortgage or leave it as it is. Your current mortgage terms are also going to play a part in this as well.
Those looking at a reset to their adjustable rate mortgage which might put their mortgage payments out of their budget may want to consider a refinance to a home mortgage. This might be their only option if they want to actually keep their home!
But for others, consider the fact when you refinance a home mortgage, it costs you money up front to do this, usually several thousand dollars. This money includes prepayment penalties for your original mortgage and closing costs and fees as well.
If the money you save on your monthly payment is not worth those costs, then this might not be the best option for you. As an example, if your costs and fees when you refinance a home mortgage equal around $3,000 but you only save $100 on your monthly payment, it will take 30 months for you to have saved what you spent. That’s almost three years!
Others however do save enough to justify this process. If you save $200 every month, it only takes 15 months to reach that $3,000 in costs; that means that by month 16, that extra $200 you save when you refinance a home mortgage is now yours free and clear.
You can also cash out the equity in your home when you refinance a home mortgage; if you want to use that equity for another purpose this can work quite well for you but remember that this means your home no longer has any equity.
Depending upon your plans for your home this can be acceptable to you, but it is something to consider for your long-term financial goals. Whatever your plans, consider carefully why you want to refinance a home mortgage and all the repercussions and you’ll be sure to make the right decision for yourself and your family as well.
