The hardest decision anyone has to make regarding refinancing their mortgage sounds very simple at first: should I refinance now or later? We’ll quickly see that matters are not so simple.
First things first, refinancing must make sense from a financial perspective. This matter is extremely simple. The break-even point of your mortgage is calculated by dividing the total costs of closing your current mortgage and opening a new one by how much you save each month.
If this point is lower than how much you still have to pay (for example, it takes 30 months for you to break even, but you currently have to pay 90 months on your current plan), then refinancing is a great idea. If not, you really shouldn’t bother. Remember, refinancing is equally good in 2 scenarios:
– Lowering your monthly payment, if your financial situation worsened
– Paying off your mortgage earlier
Here are some other things you should consider before refinancing:
1. Check your home value
Home values are very volatile in today’s markets and it’s very hard to predict how they will look in a couple of years. Carefully see if you are near or at the 80% LTV, because if you are much under, refinancing your mortgage won’t make a lot of sense.
Before speaking with any lender or mortgage broker concerning your home refinance needs, get educated about the process. It will help you in negotiation of best terms and rate:
- View: home refinancing guide
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2. Considering your employment situation
In order to consider refinancing, your employment situation should be stable right now. If you think you want to change jobs and careers in the future, you might want to refinance now, as you may have issues qualifying for a new mortgage in the future.
3. Check your credit score
If your credit score is not doing very well, you won’t receive a great lot of good refinancing offers from financial institutions. In this case, you might want to check out how to improve your credit score in the near future and postpone refinancing until you do so. There really is no point in going towards a higher interest rate or higher costs.
4. Consider changing from adjustable-rate to fixed rate
If you don’t get many other benefits from refinancing, this one alone could be worth it. Since the rates are particularly low at the moment, securing a fixed-rate mortgage at current lending rates could be a sound financial decision for the coming years.
Of course, the factors you need to weigh into this decision are numerous and complicated. Sharing this article with your friends could provide you with some valuable advice and predictions, and who knows, maybe some of them have already found some great refinancing sources. We’re sure that using all this information, you’ll make the best possible decision for you and your family!
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