It seems as if everyone today is jumping on the low refinance rate bandwagon, but is it really something that you should do? With some of the lowest interest rates in some areas, it might be hard to resist moving into the territory of lower mortgage payments. But, you should think about it very carefully before you do.
There are actually some homeowners that might be better off sitting with their higher rates. Who would that be? Read on to find out if you are in one of those groups for whom getting a lower refinance rate might be the wrong choice.
Your Loan is Old
If you’ve had your mortgage loan for a long time, you should really think about sticking it out. Remember, in the beginning of a mortgage loan, what you are usually paying is mostly interest. That means the longer you’ve the had the loan, the more principal you may have already paid. So, if you have been paying a long time, you should probably keep on paying, otherwise you’re just resetting the scorecard. However if you recently moved into your home and haven’t had your mortgage loan a long time, it might be time to refinance.
You Want to Move Soon
If you want to sell your house and move in the near future, now might not be the time to refinance, either. Remember, refinancing your mortgage will cost money – anywhere in the ballpark of $2,000 to $5,000. It’s just like closing your house, so you’ll have appraisals, closing costs, fees, and points.
Oh, and remember there is no such thing as a free loan. So, just because your lender has rolled all the closing costs into the amount of your refinanced loan, you’re still paying those fees. What’s happening in this situation is that you are just increasing the loan amount, which inevitably means you’ll take longer to pay it off.
You Don’t Really Need Lower Payments
Sure, everyone would love to pay less than they are currently paying for their mortgage, but do you really need to? What will you use that money for? If you don’t have a real need to change the amount you are paying, it might be easier for you to avoid considering a mortgage modification. Amongst certain experts within the mortgage industry there is a view that paying off your mortgage is essentially a risk-less investment that will end up yielding returns equal to the interest rate on that repaid loan over time.
So, if you don’t really need to move your mortgage into a new bracket, avoid doing so. However, the unfortunate thing is: most people that do need to refinance are the very ones who just can’t. In recent years, after the housing bubble burst, lenders have tightened up their standards and just aren’t giving their money away.
