Should You Refinance Now?
By Deanna Lynn Sletten
Photo: © Cheryl Casey - Dreamstime
 With interest rates dropping to an all-time low, many homeowners are looking to refinance their home mortgage. Considering the average fixed-rate, 30-year mortgage has been hovering below 5.0%, and a fixed-rate, 15-year mortgage has been in the mid 4.0% range, it is easy to see why refinancing your mortgage is desirable. However, there are a few things to consider before you jump on the refinancing bandwagon.
The Upside: Refinancing May Save You Money
In most instances, refinancing your current mortgage can save you money on interest, lower your monthly payments, help you acquire a better loan type and even allow you to take money from your home's equity to use for other purposes. All of these refinancing benefits sound great, especially if you are one of the many people who have experienced the downside of the current economic conditions, such as a pay cut or a job loss. Lower monthly payments on your home means more money left in your budget for other necessities and a cash out refinance may help you get current with your bills. Changing the type of loan you have can also be beneficial. If you currently have an |
adjustable rate mortgage (ARM), you can switch to a fixed-rate mortgage for a lower interest rate and a stable monthly payment. These are all win-win situations.
The Downside: You May Not Qualify to Refinance
Unfortunately, not everyone who wants to refinance will be able to. First, you must have adequate equity in your home to refinance, at least 5-10%. For the many homeowners who experienced a decrease in the value of their home, there may not be any equity left. Lenders have also tightened up their qualifications for a loan, so they will look more closely at your income, outstanding debt and your credit score. If you have lost your job or your income has lowered since your initial loan and if you have acquired more debt or your credit score has fallen, you may find it difficult to secure a new loan.
Also, refinancing isn't always financially beneficial. If you are adding additional years onto your loan, even at a lower interest rate, you are paying much more than you initially intended to when you bought the house. The closing costs on a refinance can be considerable and may outweigh the actual money you are saving from the lower interest rate. If you don't plan to stay in the house for several years after a refinance, it may not be worth it.
Refinancing your mortgage could be the perfect way for you to save money or acquire additional money at a time when it is most needed. Be sure to weigh all of your options before deciding to refinance so that it is the right decision for you. |
