We’ve all seen the news; Mortgage rates are dropping fast and many are jumping at the opportunity to refinance their home loans.
Refinancing is often done for a homeowner to get a better interest rate and loan term. To simplify what happens, the first loan is paid off and a second loan is created. For many, it is an opportunity to lock in a lower interest rate, change from a variable to fixed mortgage, or cash in on home equity.
But there’s more to refinancing your mortgage than just cashing in at the new premium. There are costs associated with the change, and for some it may not be worth the hype.
Here are three questions to ask before you refinance your mortgage loan:
What are the costs to refinance your mortgage?
The fees associated with refinancing will vary from lender to lender. Typically, fees are between 2-5% of the principal. It’s important to review the terms of your loan to find out what your total cost would be. Refinancing, like obtaining a mortgage on a new property, requires an appraisal, title search, and application fee. Talk to your lender or bank before pulling the trigger to weigh the costs of refinancing against the potential savings if you lock in a lower interest rate.
Is the interest rate reduction worth it?
Depending on when you signed your mortgage, your interest rate might not drop enough for refinancing to be worth the cost. Determining whether refinancing is worth it in your situation will depend on many factors including how much of a decrease you will get on your interest rate, the difference between your current payments, and how long you plan to live in your home.
What are my other options?
Instead of refinancing, many homeowners are considering buying new properties. While interest rates are low and home values are on the rise, if you’ve lived in your home for at least a few years you’re likely to see a return on your investment higher than the cost of refinancing. This means having the ability to put your home equity toward a new property that fits your current lifestyle needs, pay a lower interest rate on your new mortgage, and get a good deal on a home as prices continue to climb in Central Florida.
Refinancing is a big decision and one that should not be taken lightly. Consult with your mortgage lender and real estate agent to determine whether refinancing is right for you, or if buying a new property would be a better option for your finances. The market is hot and the supply is limited, making for a great opportunity to get a big return on your real estate investment.
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