In terms of interest rates, we’re living in a golden age. It isn't so much as a question of if the interest rates will go up, but when. The Federal Reserve has intentionally kept rates low to stimulate the economy, and now might be one of the best times to refinance your home.
Types of Refinancing
There are two primary types of refinancing that most homeowners use. The first type has to do with the rate and term financing. Essentially this means you’re opting for a lower rate or a shorter term with the benefit being a cash savings.
The second type of refinancing, a cash-out refinance, allows the homeowner to take the difference between the old loan pay-off and the new loan in cash. This cash-out may be used to pay other debts such as high-rate credit cards, for home improvements, or for college tuition.
Who Should Refinance?
Although there are many benefits to refinancing, it’s important to do the research to make sure it is the right decision for you. The general rule of thumb is that you need to see a 0.25% to 0.50% decrease in interest rate from what you currently have. This rule takes into consideration closing costs, but shouldn't be considered the absolute determining factor to refinance.
Another very important factor to consider is how long you plan on owning your home. If this is a property you plan on owning for a few more years, it probably doesn't make sense to refinance. The benefits of refinancing might be seen immediately as a lower monthly payment, but those benefits are realized over the long run as it lessens the overall amount you'll be paying in interest for the duration of the loan.
Additionally, eliminating Personal Mortgage Insurance (PMI) or combining a first and second mortgage into one loan are potential benefits to consider when refinancing.
Lastly and most importantly, many people refinance for a variety of personal and situational reasons. If there has been a change in income due to loss of employment or other event, having a lower payment could be very important even if it means paying slightly more in the long run.
Is Now the Right Time to Refinance?
While everyone's financial situation is different, it’s important to do the research and see if refinancing is a good fit for you. If you plan on owning your home for quite a while, and initially purchased your home with an adjustable or higher interest rate, refinancing could be a wise move. On the other hand, if you plan on selling in just a few years and the new rate would only be marginally better, it might not be the best move.
Remember, rates are still at some of the lowest levels historically, and it’s expected they’ll increase in the near future. If you’re considering a refinance to lower your interest rate or take some cash out, now may be a great time to do so.
Keep in mind that each individual’s situation is different and there are many factors to be considered. To get a clear picture of how refinancing may affect you, please call a Mortgage Consultant today at (888) 354-6228 ext. 7500 for a no-obligation consultation.