It's a question you've no doubt asked yourself. The idea sounds nice on the surface but you want to make a sound financial decision. Here are four questions you should ask yourself that will hopefully lead you to an answer to the question, "Should I refinance?"
Will a refinance lender be able to lower my mortgage payment?
This question should be at the top of your list. Getting a lower monthly payment means more cash is freed up for other needs in life. Prevailing thought has always said that the litmus test is if you can lower your interest rate by two percentage points. Remember, though, that it's likely you can always get a lower payment due to various financing options. You have to weigh the costs and whether or not paying points fits your situation.
Do I have an adjustable rate mortgage loan?
Many people have found themselves in the tenuous situation of watching their once low payments balloon due to an adjustable rate mortgage loan that resets at a higher interest rate. It is important to be aware of your situation and what could happen when the loan is set to adjust. Will it go up? How much? How much more can you afford in your monthly mortgage payment before you need to act? Refinancing can stabilize your situation with a longer term, fixed approach.
Does the term of my mortgage suit me?
You may have had a plan for your mortgage. But let's face it; life changes and adjustments are necessary. You may find that a 15 year fixed mortgage is no longer the best situation or that even though you planned to move after five years things have changed and your adjustable rate mortgage needs to be refinanced into something more long term. Regardless, a professional can explain how various program terms suit certain situations.
Do I have equity in my home that can benefit me?
In most cases, your home will have appreciated in value over time giving you the flexibilty to pull cash out from that increased value. This can help you with home repairs, retirement, college funds and even debt consolidation. Your home is a great financial tool that, if used wisely, will contribute to increasing your wealth.
For more help determing the answer to, "Should I refinance?" please see our mortgage calculators.
