When it costs little or nothing to refinance, dropping your rate even slightly can make sense.
- Understand all your options.
- Don’t wait for the ‘bottom’.
- Consider whether a home equity line might be
better than a refinance.
When it costs little or nothing to refinance, dropping your rate even slightly can make sense.
Refinancing your mortgage is a powerful financial tool that can save you thousands of dollars when done thoughtfully and professionally. It’s important to understand your choices, the timing, and how to evaluate any savings from a lower interest rate relative to the cost of the refinance.
If the lender is paying some or all of your closing costs, lowering your interest rate by as little as one-half of a point makes sense. Try not to wait for the ‘bottom’—most Wall Street pros miss it. If you wait for interest rates to drop, and they shoot up, you will have missed an opportunity to save a substantial amount of money.
Refinancing can provide an opportunity to extend your loan’s fixed term so that you don’t have to worry about higher rates down the road—by changing from a 5-year fixed to a 30-year fixed, for example. Conversely, if you are planning to sell your house in the next couple of years you may want to lower your rate and payment by refinancing into a shorter term loan.
If you need to tap your home’s equity, and if interest rates are higher now than when you took out your existing mortgage, it may be better to simply get a home equity line of credit than to refinance, depending on the type of mortgage you have.
If you are older, have a fixed income and/or limited liquid assets, and have substantial equity in your home you may be looking for a way to tap that equity without having to sell. There are several options to consider, including a reverse mortgage.
The information in How do I shop for a mortgage? and Which is the best loan for me? will also help you find the best rate and terms for your refinance.
You are welcome to contact us if you can’t find the answers to your refinancing questions here.
