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Should You Refinance Your Home?

Every four years. That’s how often the average U.S. homeowner refinances their home mortgage.

Why so often? Well, sometimes it’s because interest rates go down and they want to take advantage of them. Or their income has increased and they want to move to a shorter loan period. Or their credit has improved enough to garner a better rate. Or it could simply be that the current monthly payments are too high and they need to extend the length of the loan to lower them.

Whatever the reason, refinancing can mean big savings for you… or it might not be worth it, depending on your personal situation.

Are interest rates at least 1 point lower than your current loan?

Experts use that as the cut off point where you might want to start looking into refinancing to see if it’s worth it. Anything less than a 1-point difference just doesn’t make financial sense.

If current interest rates are 2 or more points lower than your current loan, definitely look into refinancing.

How long do you plan to keep your current home?

The days of buying and flipping might be behind most of us for the foreseeable future, but that doesn’t mean homes can’t be an investment, and there’s nothing wrong with living in a house or condo for a few years and (hopefully) selling it for profit.

But think about that carefully when considering refinancing. There are always fees attached – usually several thousand dollars worth – and it will likely take a few years to recoup those costs with your lower rate or monthly payment. Use a refinancing calculator to see how long specific loans will take to pay off for you.

Do you have an ARM?

Adjustable-rate mortgages – as the name implies – rise and fall with the current rates.

If you expect the rates to go up (and since they’re so low right now, they probably will), you might want to lock in today’s low rate by refinancing into a fixed-rate loan.

Do you need to free up money for debt or another big expense?

If you’re got a good amount of equity in your home but need money, cash-out refinancing might be they way to go. It means getting a new mortgage for a bigger amount than you owe now, so think hard about your future before taking this step… but it is a great way to get a lot of money fast to, say, renovate your home, pay for your child’s college education, or pay off high-interest credit card debt. Just make sure you can handle your new monthly payments or won’t end up owing more on your house than it’s worth in the future.

If you do decide you want to refinance, shop around.

Quizzle offers many tools that can help you see your options, and you should also check with your current lender – many times they’ll give you a better deal just to keep your business!

About the Client

Quizzle (now BankRate) was a website that offered a free VantageScore 3.0 credit score and a free TransUnion credit report every three months.

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