Should You Refinance Your Mortgage?
December 15, 2020 | Posted by: Cathy Cahill
There are a multitude of reasons why a homeowner may be considering refinancing their mortgage. However, before any final decisions are made it is always a good idea to consider carefully whether refinancing is a good idea for you.
What is refinancing?
To refinance means to apply for a new loan on your current mortgage. Due to the fact that you are applying for a new loan, you will need to supply your lender with all of the details necessary for refinancing - this will include credit history, income history, your assets and the appraisal of your home to name just a few.
Reasons why most people refinance
The vast majority of mortgage refinances are completed in order to obtain a lower interest rate on a mortgage. After all, a lower interest rate can potentially save you thousands of dollars over the life of the loan.
Some other reasons to refinance a mortgage would include:
1. Stabilizing a monthly payment: Some homeowners opt to refinance their mortgages to switch from an adjustable-rate mortgage to a fixed-rate mortgage. When you have a fixed interest rate on your mortgage it is much easier to complete your monthly budget since the payment amount will not change.
2. Combining two mortgages: Though it is uncommon, some homeowners choose to refinance mortgages so that they can combine the two payments into one. For some, this is just to make things more convenient, while for others it may hold some financial benefits.
Though refinancing may seem like a good fit for you at this point, there are still a few questions that you need to ask yourself before moving forward. These questions are:
1. Is there any prepayment penalty on your current mortgage? If so, you will need to figure the penalty into deciding whether the refinance math works in your favor.
2. What are the upfront costs for the new mortgage? Refinances often come with closing costs so these will need to be accounted for.
3. How will the refinance impact your tax situation? You may want to speak with an accountant to see if refinancing will change your taxes at the end of the year.
4. How much money will you save by refinancing? This is the most important question of all. If the refinance isn't going to save you any money there's a good chance it may not be worth completing it.
Ultimately, your decision on whether to move forward with any refinance deal will depend entirely on your own personal situation. However, don't be afraid to shop around for the best rates and you may soon find a refinance deal that works well for you.