When you refinance your home, you pay off the existing mortgage on your home and replace it with a new one. The purpose of refinancing is to secure a better term and interest rate than your original mortgage. Think back to when you closed on your first mortgage. Your circumstances and priorities may have changed since then, along with market conditions. If that is the case, it’s a good idea to review your mortgage and find out if refinancing is right for you.
Refinancing can be used to:
When interest rates are low, as they currently are, there is often a frenzy of refinancing activity in the marketplace. But before you dive in, look at the details of your situation to understand how much money you stand to save vs. how much refinancing will cost you.
The first step is to compare the rate of your existing mortgage to the new rates being offered. How much have they dropped? If your existing rate is higher than the current rate for your credit score and type of mortgage, you should dig deeper. Would refinancing lower your monthly payments and make your house more affordable?
How long do you intend to keep the mortgage? Remember, when you refinance your mortgage, you will have to pay closing costs, just as you did on your original loan. If you are planning on selling your house in just a few years, you may end up breaking even or even paying more in closing costs than you would save with lower monthly payments. However, if you plan to keep the house, refinancing your mortgage to a shorter term (15 years instead of 30) will put you in a position to pay it off sooner.
Refinancing your mortgage can also give you the opportunity to take cash out from your home’s equity and use this to consolidate debt or fund home renovations. Be careful about using your home’s equity to pay off credit cards, as it can be very easy to accumulate this debt again and put yourself in a worse financial situation.
If you have an adjustable rate mortgage (ARM) and your interest rate has risen or your income has dropped, you should consider refinancing to a fixed rate mortgage.
There is no simple way to know whether refinancing is right for you. However, at today’s interest rates, refinancing is a very smart move for many homeowners. Contact a Uwharrie Bank Mortgage representative to find out if now is the time for you to refinance.