You may look to refinance your home when interest rates drop to gain access to extra cash from your home equity to reduce debt. In a market with falling home prices most people are looking to reduce their monthly payments or increase the rate at which they can pay off their mortgage.
Refinancing can be a positive strategy move based on your individual situation but it might be less expensive to stay with your current mortgage.
Here are some things to think about if you are contemplating refinancing:
• Interest Rate. Use an online mortgage calculator to determine what interest rate you would need (be sure to account for all the costs of refinancing) to strike a beneficial arrangement.
• Staying or Moving? If you are planning on staying in your current home for a short period of time it may not make sense to refinance. It will usually take some time to reach a break-even point with your existing mortgage.
• Savings. It is important to ensure that you have adequate savings for emergency funds and retirement so refinancing to pay off your mortgage quicker may restrict how much you can put away. Take into consideration the benefits of saving versus paying off your mortgage in a shorter time period.
• Debt. Consider what other debts you have before deciding when to refinance your home. Paying down any existing high-interest debt will save you more in interest than reducing your interest rate on your mortgage.
• Credit Score. Your credit score plays a key part in qualifying to refinance your mortgage. Be sure that you have a high enough credit score prior to starting the process to refinance.
In certain situations, refinancing can provide you with the right solution; however it is not always the prudent step in all cases. Be sure to evaluate your circumstances and understand the consequences and impacts of refinancing. A little research ahead of time can help you make the right decision on when to refinance your home.