Should You Refinance Your Mortgage Now?

"Interest rates can't get any lower!" - Everybody, A Year Ago

Well, interest rates are at rock bottom... again! Is it time to refinance your mortgage? Well, maybe. Here are a few reasons you might consider a refinance right now:

Get a Lower Interest Rate - How Low Can You Go?

One of the most popular reasons for refinancing a current mortgage is to take advantage of interest rates that are lower than when you took out your original loan. It is vital that when looking into refinancing at a lower interest rate, you take into account the closing costs and fees that will be associated with a refinance to make sure it is worth the switch. Let us know if you need help evaluating whether a refinance is right for you!

Tapping into Home Equity

You may want to take some cash out of your home by refinancing. Maybe you have a home improvement project you could use the money for. Maybe you have credit card debt that is at a much higher rate, and it would be better to pay that off. Maybe you want to use the funds for something else. Just remember that you only get the mortgage interest deduction for loans used to buy, build, or improve a house. Anything else isn't going to be a tax benefit.

Should I Change The Term of My Loan?

While the rates for a fifteen-year mortgage will be slightly lower than a thirty-year mortgage, the difference today isn't as marked as it used to be. This means that the benefit of paying less interest is reduced. If you itemize, the benefit is even less. And a thirty-year loan at historical lows is both a nice hedge against inflation and a protection against other risks - if you end up getting laid off, for example, it's a lot easier to keep up with the lower thirty-year mortgage payment. You can always pay it off early if you decide you want to, but having that lower payment gives you a lot more flexibility. And if you put the difference in conservative investments, you're likely to come out ahead in the long term.

On the other side, some people enjoy having the increased "forced savings" that a shorter loan brings. If you're prone to spending extra money in your bank accounts, then you're likely not to benefit from the longer term mortgage. And for some people, the most important factor is peace of mind. Having a paid off house is more important to them than any savings they might get from refinancing to a lower rate thirty-year mortgage.

What are the Cons to Refinancing?

Just as above, if you're prone to overspending, then refinancing can end up simply being a good excuse to use your home equity as an ATM. Will you blow all of the savings on wine and limited edition Star Wars figurines? Then maybe just stick with your current mortgage, or refinance to a shorter term to force yourself to save.

If there's a risk that you might move within the next few years, a refinance makes even less sense. The fees associated with a refinance can eat up any possible gains if your timeline is short.

Lastly, refinancing is a hassle. You'll have to go through mounds of paperwork and comparison shop (although we can help you with that). You'll get the new stress of trying to figure out when to lock in a rate.

Is it Worth It?

You decide, of course. But we can help you run the numbers if you're considering a refinance so you can see what your potential savings would be. If you haven't refinanced in years, it's certainly worth checking out.

Natural Bridges Financial Advisors