Refinancing seems to be in the water lately – probably because rates are at historic lows. While it might seem like a universal good move for everyone, there are certain circumstances when you should and when you shouldn’t refinance. Here’s a quick guide to help you determine which camp you’re in.
Who Should
The people who would benefit from a refinance would be anyone whose mortgage would significantly change in their favor and who plan on staying put in their home. More specifically, a refinance would benefit those who:
- Have an interest rate 1% above the current rate
- Plan on living in their house for five years or more into the future
- Have an adjustable rate mortgage (ARM) and want to turn it into a fixed or vice versa depending on current rates
- Refinancing would shorten the term of their loan
Who Shouldn’t
Basically, anyone whose mortgage wouldn’t alter significantly in their favor or wouldn’t be staying in their house long enough to start reaping the benefits probably shouldn’t refinance. It wouldn’t make sense to put in all that work for little reward. So, those who:
- Wouldn’t see a significant change in their interest rate
- Know there’s a possibility of selling their home within the next five years
- Would be moving into a longer term loan so their payments are less (for example, the mortgage has 10 years left but is refinanced into a 30 year, so now the payments are less but it added an extra 20 years onto your mortgage)
Of course, while I can outline the criteria of who should or shouldn’t refinance, situations vary by the individual. Reach out to your local Flat Branch mortgage banker to help you decide if refinancing is right for you.
