When interest rates have dropped and the end of the mortgage term arrives, many homeowners ask themselves: “Should I refinance my mortgage now?” The answer is never simple. Negotiating a lower home loan interest rate can significantly improve a homeowner’s financial status, or it might prove a bad decision in the long run. Many variables must be considered, including mortgage refinancing fees, credit history, the amortization period of the loan, other personal debts, and other financial investment opportunities.
A financial decision this important cannot be rushed. Below are a number of pros and cons associated with refinancing a mortgage rate. Consider these advantages and disadvantages carefully and judge them against one’s personal circumstances before going forward.
Should I Refinance My Mortgage? Pros.
The most obvious and important advantage of refinancing home loans is lowering monthly payments. One can save a great deal of money in the long run, especially if the original mortgage was signed during a time of adverse credit, which was subsequently resolved, or if interest rates have dropped significantly. Borrowers in this position should certainly consider the money saved by locking into a lower rate they might not have qualified for at the beginning of their original mortgage.
Finding a fixed mortgage refinancing rate also increases the financial stability of a family paying off home loan debt. Without fluctuations in monthly payments associated with a standard variable rate, families can more accurately plan for expenses, and become more fastidious in their monthly financial accounting. It’s difficult to predict fluctuations in mortgage interest rates for the housing market, even for mortgage and home loan experts, but switching to a fixed rate at least provides stability and security.
Should I Refinance My Mortgage? Cons.
The biggest disadvantages to refinancing home loans are all the various fees associated with the process. Lenders and brokers are in the business of making money, and will charge fees at every possible turn. Refinancing home loans may incur any number of procedural costs—processing, administration, application, arrangement, valuation, inspection, document preparation, appraisal, credit report, notary, recording, etc.
All of these fees can add up to thousands upon thousands of dollars. To weigh these costs against those one might recoup through a lower interest rate over the long term, add up all the fees included in the new home loan contract and compare them to the money saved in interest over the full course at the lower interest rate.
Determine how long it will take to break even on the costs incurred and investigate other investment options. If there is a smarter investment option available, consider keeping the money that would be lost to refinancing fees as cash in hand to invest elsewhere. Many fees are negotiable, and lenders may acquiesce if one is persistent in demanding that certain fees be waived.
More Mortgage Refinancing Tips
The question, “Should I refinance my mortgage?” brings up myriad financial issues. Refinancing home loans is an extremely complicated issue and should not be rushed into. Consult with a financial expert or any third party if fees are reasonable to help understand one’s particular circumstances. Make sure to do plenty of research and planning to find out if refinancing is the right decision.