As I watch the stock market tank and rally, it reminds me of 2008 when the housing market crashed. It’s not a great time for us, but when faced with bad, there’s typically something good too. I thought about was refinancing my loan, because typically when the economy contracts, lower mortgage rates are not far behind.
The housing market in my area has been volatile for a couple of months. In hindsight, a refinance indicated for those who have bought homes with a higher interest rate may benefit from a refinancing. With the ups and downs, we don’t know from day to day if it will become more or less favorable.
Overall, refinancing can possibly decrease the amount of your total money paid out in interest rates. But there’s a lot of things to take into consideration. Each person who takes refinancing any loan should consider their individual needs. This is not about me trying to convince you to refinance, because I don’t know your personal situation.
However, in general there are some good reasons to take into consideration of refinancing your mortgage.
Take advantage of lower interest rates
This is the main reason you refinance your loan, because you’ll get a much lower interest rate which decreases your payments and the amount of money you’re paying the banks in interest. Check your interest rate and then compare against current rates. A reputable mortgage broker can guide you through this process. You can find mortgage brokers through your bank, or by referral from a respectable source.
Switch to 15- or 20-year loan
You may want to shorten the life with your loan, but it will increase your mortgage payments, sometimes significantly so. However, this may also decrease the overall amount of payout to interest, especially if you’re getting a lower interest rate. Usually, the less time length of the loan, the lower the interest rate.
Your mortgage broker can get comparisons on loan length and interest rates, along with monthly payments of principal and interest. Take all of the numbers into consideration to determine if you can afford your payments and if you are saving money in the long run.
Rolling other debt into a mortgage
I highly discourage this to be the main reason to refinance. Your home is not a bank. Plus, most people who refinance only to add debt to their home will likely incur more debt and become worse off than before they refinanced their mortgage loan.
However, if you want to roll a HELOC or another high interest rate loan into a refinanced mortgage, you may or may not be be better off, depending on your current interest rates compared to the refinance interest rates. Again, crunch the numbers with a mortgage broker.
Keep an open mind about how you’d like to readjust your finances. Working on reducing your debt is the ultimate goal, so get your interest rates decreased as much as possible, and use the extra dollars towards paying off your debt long term.