Consider your situation and goals before making this costly decision. (iStock)
The coronavirus pandemic has come at a high cost in the United States economy, and although the housing market has begun to recover from the economic downturn, many homeowners may be turning to mortgage refinancing instead of selling their home.
The good news is that now may be a better time than ever to refinance your mortgage. National mortgage interest rates have reached a record low, making it easier to get a lower interest rate on your biggest debt. You can explore your mortgage refinance options by visiting Credible.
But just because the rates are favorable doesn’t mean that refinancing is the right step for you. Here are some good reasons to consider it, along with some reasons that should make you think twice.
The best reasons to refinance your mortgage
A mortgage refinance can serve many purposes, but here are the three that make the most sense:
Lower your interest rate and monthly payments: When you replace your existing home loan with a new one that has a lower interest rate, it could lower your monthly payment and save you thousands of dollars in interest. Also, if you replace a loan with, say, 25 years remaining with a new 30-year loan, that will also help reduce your payment.
Speed up the payment process: If you can pay a higher monthly payment and want to get rid of your mortgage debt faster, you can refinance your loan with a shorter repayment period. Combine that with a lower interest rate and you will save a lot of time and money. Use Credible’s free online tools to see what rates you qualify for today.
Debt consolidation: With a cash mortgage refinance, you can take advantage of some of your home equity and get cash, which you can use to pay off high-interest debt. However, if you do this, it is essential to make sure that you can pay your new monthly mortgage payment, which may be higher than the current one. Also, take steps to avoid replacing your consolidated debt with new debt.
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The worst reasons to refinance your mortgage
Depending on your current financial situation and your plans with the house, you may be interested in using a mortgage refinance loan to resolve short-term concerns. However, it may not be best to use a long-term financial solution to do so. Here are some reasons that may not work in your long-term favor:
You need quick cash now: It will take you about a month to refinance your home loan, which will not help you with an emergency situation. Also, refinancing can be expensive, with closing costs ranging from 2 to 6 percent of the loan amount. If you need quick cash, consider applying for a personal loan. You can pre-qualify and compare multiple loan options by visiting Credible.
You don’t plan to stay home for long: Getting a lower monthly payment can save you money, but only if you stay in the house long enough to cover the closing costs of the loan. For example, if refinancing reduces your monthly payment by $ 100 and you paid $ 5,000 in closing costs, it will take you 50 months to begin to see the actual savings on the new loan. If you don’t plan to stay that long in your home, you will actually lose money.
Take advantage of your capital for non-urgent problems: A cash withdrawal refinance can be a great way to consolidate debt, but if you want to use your capital to live beyond your means or pay for something that is not essential, you may ultimately regret it when you come across a payment. Highest monthly for the rest of your loan.
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Deciding if your mortgage refinance is right for you
Refinancing a home loan is an important financial decision, and it is important to understand your motivations before you start comparing prices. Take some time to think about how the decision can affect you both now and in the future.
Plus, run the numbers to make sure you really save money with a mortgage refinance, either through interest savings on consolidated debt or due to a reduced monthly payment.
If you are unsure, consider consulting a financial advisor, who can provide objective and expert advice on the matter. If you decide to refinance, visit Credible to compare rates and other terms from multiple banks and lenders in one place.
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