You should refinance when it makes sense for you economically. Ask yourself these questions:
What is my goal?
The variety of reasons to re-finance a mortgage boils down to two different goals: to save money or to take money out of the principle of your house’s value.
If you are looking to lower your monthly mortgage payment or to pay off your mortgage faster, then refinance when mortgage rates are lower than your current mortgage. With a lower interest rate, you can either reduce your overall monthly payment or make the same payment with more of it going to principle and therefore paying off your home faster.
If your goal is to tap your home’s equity, a lower rate is still a good idea. But now your primary criteria is to have enough principal to withdraw. In other words, your home should be worth more than you owe. You will end up with a bigger mortgage but if it is also at a lower rate, your monthly payment may not change too much.
Call Team Scherer to get an idea of the current value of your home to see if refinancing is right for you.
Can I afford the closing costs of a refinance?
Find out the closing costs before you refinance. Examine whether with closing costs if you will be saving money with the lower interest rate. Sometimes it takes a couple years to recoup the costs of refinancing.
How is my credit score?
Refinance is easier when your credit is in good shape. Your credit score needs to be healthy enough for a bank to be willing to take a new gamble on a mortgage with you. If a bank turns you down for refinancing, ask what you can do to improve your score. Try paying bills on time and lowering debt on credit cards for half a year or so to improve your score.
What does refinancing involve?
Refinancing your home mortgage is not something to take lightly. When you refinance, you pay off your existing mortgage (or mortgages) and start a new mortgage. You are essentially buying your house again!