The Commonwealth Blog

Monday, March 30, 2020

Is Now the Right Time to Refinance?

Interest rates are reaching historic lows. As of February 2020, the interest rate for a 15-year fixed rate loan is 2.97%. Rates this low are prompting many homeowners to consider refinancing, but is it the right decision for you? Let's think it through. There are many reasons you might choose to refinance. Here are three of the most common:

1. Lower Interest Rate and Payment

If you're paying an interest rate significantly higher than the current rate, it could make financial sense to refinance. You’ll probably get a better interest rate and a lower payment.

2. Switch to a Shorter-Term Loan

Many financial experts recommend that individuals do not sign up for a 30-year mortgage when buying a home. If you did, you may want to refinance and choose a shorter-term loan.

3. Free Up Extra Cash

Some people refinance for an amount greater than the remaining balance of their loan. If you need cash to invest in a business, another property, or furthering your education, refinancing is a way to get the cash you need.

If you think refinancing might be a good idea, the most important question to ask is “How much will it cost?” Refinancing usually reduces your monthly mortgage payments, but you will have to pay fees and closing costs. Sometimes, the cost of refinancing is more than the amount you will save. In this case, refinancing makes little sense, unless you need the money for some other purpose. Some lenders offer no-cost refinance loans, but these often come loaded with fees, restrictions, and higher interest rates.

Is It Worth It?

It takes more than just math to answer this question. There are other factors to consider: How long will it take to break even? How long do you plan to be in your current home? What will happen if you move? Only you can answer these questions for yourself.

The Bottom Line

Refinancing can be complicated. The best way to navigate the process is with some trusted advice. Speaking with a real estate professional is the best way to learn more about what goes into refinancing and decide whether it's right for you.


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