When is it (and isn’t it) a good idea to refinance? Let’s find out.
How often can a person refinance their home, and why should they?
In general, there are three main reasons why a person might choose to refinance their mortgage:
1. To eliminate mortgage insurance or reduce the interest rate. This is the most common reason for people to refinance. To see a long-term savings benefit, though, homeowners will need to reduce their interest rate or mortgage insurance by .5% or more.
2. To reduce the term. Sometimes people who start off with a 30-year loan may find that after paying it down for a while, they can afford a larger payment. In this case, people may switch to a 15-year loan in order to reduce their term and save thousands over the life of the loan.
3. To pull equity out of the house. If values have risen while you’ve been paying off your loan, you may be able to extract equity from your home to pay off debt, send your kids to college, or even go on vacation.
While each of these is a good reason to refinance, there are instances where refinancing is a bad idea.
If you’re not getting a reduction in your interest rate or mortgage insurance, for example, you definitely don’t want to refinance. Unless you’ll be seeing a savings of at least .5%, the cost of refinancing will outweigh the benefits of doing so.
Refinancing may also be a poor choice if you plan to move in the next couple of years. You should only refinance if you truly need to, or if you’re certain to save money by doing so.
If you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.