With the poor economy and down trend in home values, the government has attempted to improve the economy by lowering interest rates. Today interest rates are lower than they have been in years. Many homeowners are rushing out to refinance their homes to lock in these low interest rates. Are they doing the right thing? Or are they just jumping on the bandwagon?
The first question you should be asking is: “If I refi my house at a lower rate how will that benefit me?” With a lower interest rate you have a few advantages regarding your mortgage. The lower rates will allow you to payoff your mortgage sooner if you choose to make the same payments you made before refinancing. More of your payment will go to principal. Or, if you have trouble making your current mortgage payment, a lower rate with a longer term will lower your payments and make your mortgage more affordable. Another advantage of refinancing while interest rates are low is the ability to lock in this low rate so you will be protected if interest rates rise.
Is it Worth It?
Keep in mind if you have made the decision to “refi my house” there are costs involved. You must decide if the benefits of refinancing outweigh the costs. This is especially true if you are rolling the costs into the mortgage. You will be increasing your mortgage in some cases by $5,000-$7,000. If you are due to payoff your mortgage in five years or less, refinancing at this juncture might be more expensive. Also consider if you plan on moving in the next few years. Those additional costs, despite the lower interest rate, may lead to a more expensive mortgage. So be sure to consider all aspects of refinancing.
Lowering My Debt
Another advantage to refinancing your home, especially for lower payments, is it frees up some cash. The best use of this cash is to payoff existing debt. First, plan on paying off the high interest credit cards. Car loans and other small term loans should be paid off next. Finally try to make double payments on your mortgage and look to setting as much as possible aside for retirement.
If you are asking yourself should I refi my house, you want to consider the benefits and make sure they outweigh the costs. By examining all aspects of refinancing from the new term, the payment, interest rate and costs you will be able to decide if this is a smart decision for you.
By Destiny Page