There are a lot of reasons a homeowner might consider refinancing their mortgage. Ultimately, refinancing your mortgage means trading off one loan for another, so if you have debt or an unseen expense to cover, refinancing your mortgage can be an option to cover it.
So, should you do it? And when should you do it? We explore what circumstances mean refinancing your mortgage is in your best interest here.
Yes
The biggest issue with debt is usually the interest rate. As time goes on, repayments may go up, making the loan more difficult to repay. One of the most attractive reasons to refinance your mortgage is for the lower interest rate. You can check your potential monthly interest rate against your current policy online. Generally, if you are saving at least two percent on interest, you would be best refinancing. If you are considering it, check the best mortgage rates here.
Going hand in hand with the insurance is the fact that usually your repayment time will go down significantly. It might even cut it in half.
If this isn’t so much about funding existing debt, you might be looking at refinancing in order to switch from an adjustable-rate mortgage (or ARM) to a fixed-rate mortgage. ARMs typically offer lower rates to begin with and then increase them to higher rates than a fixed-rate mortgage would offer. It can offer some piece of mind to switch to a fixed-rate mortgage and know what you will be paying for the rest of the loan.
No
Mortgage refinancing comes with a risk of slipping further into a debt hole from which you cannot escape. This makes it a bad option when considering how to get out of debt. You will simply be swapping one load of debt for another – with the added risk of your home as collateral.
If you are looking to switch to a longer-term loan with the refinancing of your mortgage, you will simply find you will spend more money in the long term. The smaller monthly repayments may seem attractive to begin with, but by stretching them over 30 years rather than the 10 years you have left, you will be spending a lot more. There is also the closing costs and fees to think about, which can be around 2 or 3 percent of your home loan, which might take you longer to pay off.
If you are looking to invest, look elsewhere. Taking cash from your home means, again, that your home will be collateral if you don’t repay it. But on top of that, you would have to be a very savvy investor to make a good investment that would outweigh the risk. Cash is simply too easy to spend, and it might well be gone on frivolous things before you make any investments.
Conclusion
To summarize, it really is a matter of what position you are in. If you feel that you are in a position where refinancing your mortgage could be beneficial and not detrimental to your finances, you can look for options online.