As a homeowner, you have probably wondered, should I refinance my home? In reality, each case is unique. But, to clear up doubts, we will talk about the factors that you should consider to see if it suits you.
Refinancing your home is very expensive, so I’ll also help you figure out how much it could cost you. And did you know that not all people qualify for a refinance? Well, we will also talk about how to know if you would be eligible and in what situations you should NOT refinance a home.
LISTEN HERE: WHEN SHOULD I REFINANCE MY HOUSE OR MORTGAGE CREDIT?
When should I refinance my home or mortgage?
I should refinance my house
Learn the rules to follow so you don’t make a costly mistake when refinancing your home.
Refinancing is like buying your home again. You get a new mortgage to replace your current loan.
There are people who refinance to “get money” from their home, that is, to obtain a loan on the equity of their property. Other people decide to extend the term of their mortgage so that their monthly payments “go down.”
There are many reasons to refinance a home. For example, you can do it to get a better interest rate, reduce the term of your loan, or in the case of a divorce, to remove a former partner from liability on the mortgage.
If your reasons for refinancing are to take money out of your mortgage or extend the term, I do not recommend that you do so. The longer it takes you to pay off any loan, the more you will pay in interest. In Chapter # 50 of So I Live Better Podcast I explain in more detail the costs of your mortgage.
In short, refinancing your home is like buying it back, but with a different loan.
Why should I refinance my home or mortgage?
I should refinance my house
Refinancing is a very good tool when you want to save money on your mortgage.
The answer is very simple. You should refinance your home to save money on interest. You should never refinance to extend the term of the loan. By stretching the loan, you also increase the amount to be paid in interest.
The two main factors that will allow you to save money are, obtain a loan with:
A lower interest rate
A shorter term
For example, if your current mortgage has an interest rate of 8% and is for a term of 30 years, you could save a lot of money on interest by refinancing with an interest rate of 6% and a term of 15 years.
Also, you should refinance to replace a variable rate mortgage with one with a fixed rate. As the name implies, the variable interest rate changes over time. In the long run, you can end up with a much higher interest rate than what you started with.
When you have a variable interest rate, your monthly payments change constantly. With a fixed interest rate, your payment will always be the same for the entire duration of the loan.
In this article from the Office for Consumer Financial Protection you will find more information on variable interest rates.