There can be many events that happen that can make someone consider refinancing a mortgage -- a change in market rates, a significant life event, or a need for major home renovations. Depending upon your circumstances, this may be a great option for you. However, there are some things to consider before moving forward.
1. Your current mortgage loan
Knowing where you are is great place to start. What is your current interest rate? How long is your term? What kind of loan are you in -- fixed-rate, adjustable-rate, jumbo, etc.? How many years do you have left on your current mortgage? The answers to these questions can help shed a lot of light on whether or not refinancing is a good option for you at this time.
If your mortgage loan is an adjustable-rate or balloon type mortgage, then refinancing before your loan begins to adjust or the balloon payment comes due could be a smart move, but there are few things to consider:
• What is the current interest rate environment? Right now, rates are at truly historic lows, which means even if you refinanced in the last few years, you still may be able to save money.
• How much will the closing costs be?
• Will your term be extended?
• Are you planning to sell the house anytime soon?
If you’re in a fixed-rate mortgage, then the following questions may apply:
• How much lower will the new interest rate be?
• Will the savings in interest be greater than the closing costs paid?
• Is a shorter term loan with a possibly higher payment affordable?
Carefully reviewing your current mortgage loan and the current rates the type of mortgage loan you would like to refinance into can give you some good insights as whether or not it’s a smart option.
2. Your reason for refinancing
What do you hope to gain from refinancing your mortgage? Lowering your interest rate? Lowering your monthly payment? Getting cash out of your home to pay for renovations or other expenses? All of these? A discussion about your goals will help point you in the right direction as far as the type of loan that may work best for you.
3. How refinancing your mortgage fits into your overall financial goals
If getting out of debt quickly is your plan, then a shorter term mortgage with a higher payment could take up financial resources that could be used to pay down higher-rate debt. Making a list of your debts and their corresponding interest rates and balances can be a good way to start to analyze the expected benefits of refinancing. The potential closing costs of the loan should also be considered as the out-of-pocket expense could put a crimp on your monthly budget or your rainy day savings fund.
If you’re close to retirement, then coordinating paying off your mortgage to free up your cash post-retirement may be a smart move. Your financial adviser can offer you guidance as to whether or not this may be a good idea given your overall situation.
First South Financial has a full service mortgage department whose friendly and professional staff can walk you through your refinancing options. To find out more, contact them at 901-380-7530 or at mortgages@ firstsouth.com.