Should You Refinance?

by Jessica Sommerfield · 0 comments

If you’re interested in buying a new house or deciding whether to refinance, 2013 is shaping up to be a good year for the housing market. According to major mortgage buyers like Freddie Mac, 30-year fixed mortgage interest rates are at a near-record low, reaching digits that haven’t been seen since the 1970s. And, unlike previous years since the housing market crash, the economy is showing signs of growth, further increasing the incentive to buy now.

Although all signs are showing that this year is a great time to buy or refinance your home, you may not be certain whether refinancing is the best option for you at all. The following are some reasons you may or may not want to take this important financial step.

You May Want To Refinance If:

Rates have fallen at least 2% lower than your current interest rate. This is a general guideline. If interest rates in the market have dropped significantly lower than your current loan rate and appear to be stable, it’s a good time to refinance and get a lower fixed rate for your 30 or 15-year mortgage. There may be advantages to switching the type of loan you are carrying, as well, such as from a variable rate to a fixed rate. Improving the terms of your home loan can relieve financial stress and free funds for savings and other financial goals.

You want to consolidate your home loans and other debt. Lower interest rates may be a good time to consolidate two loans into one, a step which could reduce the amount of interest you pay on both and change the pay-off schedule to better meet your needs. Consolidating your debt could also mean adding in other debt, such as credit cards or student loans. Since credit card interest rates are usually much higher than those of mortgages, you will be saving money while achieving the convenience of one monthly payment. Another benefit of consolidating all your debt into your mortgage is that the interest you pay will be tax-deductible, unlike other kinds of debt.

You want to do major renovating or pay for college. The equity, or value or your home, can be the basis of a home equity loan. This may be a good choice if you are comfortable with your monthly payments and need funds for home improvements or cash for college tuition. The exact amount you are able to borrow will depend on your home’s equity and the remaining amount of your loan. Although it’s not advisable to go further into debt, home improvements and college tuition are usually wise investments with long-term benefits as long as you don’t over-extend yourself.

If you think you want to refinance, there are numerous online refinancing calculators to help you get a better idea of what your new loan would look like. Simply plug in your specific loan statistics and the calculator will do the math for you. Beyond online tools, you should contact your mortgage owner to see what options are available to you.

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