Rates on mortgages are so low today, that it makes sense to refinance your higher-rate home loan. If you have enough equity in your home, which is not so for a lot of people who purchased at the peak of the market, prior to the crash, you ought to sincerely consider refinancing to a discounted rate, and eliminating years on the term if possible.
Do You Have The Equity?
When you have equity in your house, and have a home loan at more than 5%, especially when you have more than 20% equity which gets rid of private mortgage insurance or PMI, you need to strongly consider refinancing. Mortgage rates are really low today. You might be in a position to save yourself thousands of dollars per year and reduce your monthly payment by a hundred or more dollars.
Are You Planning To Stay In The House?
Something you will need to factor into the option of refinancing is closing costs. You will almost certainly have to pay closing costs on your replacement home loan. If you expect to be selling the house anytime soon, it's a must to determine your cost savings in interest compared to the refinance settlement costs. As an example, should you were to save $1,000 on interest costs throughout a year, but your refinance settlement costs are $3,500, you will need around 3½ years to make up the fee. If you are going to sell in 2 years, it does not make sense to refinance as you will have lost $1,500 in the deal. Do the math if you are going to sell in the not too distant future.
Shorten Your Term, Do Not Extend It
It's tempting to refinance into another 30 year loan since the installments will lower. Dependent upon the level of equity you have an the years remaining on your existing home loan, the monthly premiums may well reduce considerably. Even so, it's always best to knock years off your loan. Interest rates on 15 year mortgages are better than on 30 year home loans. On top of that, you will obviously be out of debt faster. You can get a 30 year mortgage and pay it off in 15 years which will have the same effect, but that leaves the temptation to let it linger on for longer than it should.
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Should You Refinance Your Mortgage?
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