One of the most common questions that people have when considering refinancing their home is: will it be worth it? The answer to this question depends on whether you need to do so for financial reasons or simply looking for a lower interest rate.
If your current mortgage has an interest rate that is significantly higher than what’s available in the market, then refinancing could mean big savings on your monthly payments.
But if you’re just going through with a refinance because rates are low and you won’t be able to cover the closing costs and other fees, then it may not make sense financially.
This article breaks down all of the pros and cons of refinancing your mortgage so that you can decide for yourself whether it’s the right move.
Pros of Refinancing Your Mortgage
Your monthly payments could be lower.
You may have access to a larger loan amount, which would allow you to buy or sell more homes than before.
The new interest rate on your mortgage is likely going to be much lower than the one currently holding it back from performing better in terms of its annual percentage rate (APR).
The most common refinance is a home equity loan, which will allow you to access the equity in your property for other purposes like paying off debt or building up an emergency fund.
Cons of Refinancing Your Mortgage
Closing costs and other fees related to refinancing can add up quickly, eating into any money that was saved by getting a lower interest rate.
If you’re simply looking for a low interest rate but not because rates are high enough to offset closing costs and/or other associated fees, then there’s no need to refinance.
You may not be able to get a new mortgage with the same interest rate if your home doesn’t have sufficient equity now – or at any point during this loan term, for that matter.
Refinancing might mean moving up closer to retirement age before being eligible for FHA financing again (which is generally more affordable than it used to be).
If rates go even lower after refinancing and are below current market values, then you would need to repay the debt from your own funds to take advantage of those lower rates.