With interest rates hitting all-time lows in 2020, a lot of homeowners have started wondering whether it is a good time to refinance. Generally with very low interest rates, the answer to that question is yes. However, there are some important things for you to think about before you move forward that can impact whether refinancing is the right choice for you. Here are three questions to ask.
In general you shouldn’t refinance just for the sake of refinancing, but there are times when it makes sense. For example:
When you refinance you do have to pay closing costs on the new loan. If you don’t have cash you may be able to put those costs into your new loan, increasing the principal balance on your loan. To calculate the “break-even” point when the savings will be greater than the closing costs, divide the closing costs by your monthly savings.
For example, if you are refinancing and you will save $150 a month on your payment, but it’s $3,500 in closing costs:
It will take you 24 months, or around 2 years, to get the full financial benefit from your refinance. If you are planning to sell your home in the next 5 years, that might not be worth the costs and hassle.
In part two of this blog post we’ll cover two additional questions to consider before you decide if refinancing is the right choice for your loan. If you have questions about refinancing, reach out to the experts at Integrity First Lending to learn more.