A good friend of mine asked me about refinancing her home, so I thought why not share what I know with everyone
😊
If you’re thinking about refinancing your home, there are several factors to consider when determining if refinancing aligns with your financial goals.
- Consider the current interest rates.
- Determine your financial goals. For example, are you trying to reduce the amount you pay or pull cash to take care of other expenses?
- Consider the closing costs and how long it will take for you to make back your expenses with a lower monthly payment.
- Determine if you want to change the terms of your loan. For example, if you decide you want to switch from a 30-year term to a 15-year term, the monthly payment could increase but save you on interest in the future.
- Make sure your credit score is in good standings.
- Consider your home equity. If it is a significant amount, you might be eligible for better refinancing options. Home equity is the portion of your home that you actually own. For example, if your home is worth $400,000 and you owe $300,000 on the mortgage your home equity would be $100,000.
- Consider your future plans if you are thinking about moving and evaluate the cost of refinancing to potential savings.
What is Refinancing?
Refinancing is essentially replacing the current mortgage payment you have now with a new one. People will choose to refinance for many different reasons.
- A big one is to lower their interest rate. This can decrease the monthly mortgage.
- Changing the terms of their current loan. Changing from a long term to a shorter term can help you to pay less in interest and pay off the loan faster.
- People generally use Cash-out refinancing option for things like home improvements, emergency expenses or debt consolidation. Cash out refinancing is taking out a new loan for more than what is owed on the current mortgage. The difference between the new loan and existing loan is received in cash at closing.
- People will use Change in loan type to switch from one mortgage to another. There’s fixed-rate to adjustable-rate mortgage (ARM), adjustable-rate to fixed-rate mortgage, Government to conventional loan and refinancing terms within the same loan type.
Reason to Not Refinance
There are also reasons why it is not always a good idea to refinance your home.
- If your closing costs and fees are too high. You don’t want this to outweigh any potential savings you could get from the interest rates.
- If you are planning to move it might not be worth it to refinance. You might not be able to recover those expenses.
- If the interest rate is already low, there is no need to refinance.
- If your credit score has dropped since you started with the original mortgage, you might not get a better rate than what you already have.
- If you are close to paying off your home.
For many people today, refinancing is not an option just because interest rates are extremely high. My brother purchased his home at the PERFECT time. If he were to refinance today, he might end up paying more interest in the long run and increase his monthly mortgage payment.
According to Bankrate, As of Monday, December 4, 2023, current interest rates in Texas are 7.46% for a 30-year fixed mortgage and 6.62% for a 15-year fixed mortgage.