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How to Know if Mortgage Refinancing is Right For You


How to Know if Mortgage Refinancing is Right For You

The obvious reason to refinance out of a high mortgage rate, you drop your payment. If your current mortgage is too high for you to pay, mortgage refinancing could be a good way to adjust to your new economic reality. However, there are many questions to ask yourself before mortgage refinancing.

How long do you plan to stay in the property?

How long you plan on staying in the property is an important factor when it comes to knowing if your interest rate on your new loan is low enough to justify the costs and trouble of refinancing. Also, ask yourself how many months of savings on the reduced mortgage payment it would take to earn back the expenses of the new loan.

Will I be able to meet my other financial goals?

Mortgage refinancing to a shorter-term loan may work if you have few long-term debts and you have enough money coming in each month to pay all of your bills. However if your budget is tight, putting more money into your home could be a bad idea.

How much will my monthly payment be?

If you are planning on refinancing your mortgage, your debt-to-income ratio should be low enough to prove to a lender that you can afford the higher monthly payment. According to NerdWallet, “For most loans, your DTI should be no more than 36%, according to Fannie Mae. Keep in mind that lenders include all your debt when calculating DTI and will hit you with a higher rate if you have a high ratio. So if you have a lot of credit card debt or a sizable car payment, prepare yourself for a higher mortgage rate. “

Why do I want to refinance?

At the moment, the market interest rates are probably lower than your existing mortgage interest rate. You can save considerably from locking in a lower rate. According to Forbes, “The best way to save money on your mortgage is to pay off your mortgage faster. When looking to refinance, try to get a 15-year mortgage. If you can’t afford the payments, make sure you pay extra every month on your new 30 year mortgage to ensure you aren’t staying in debt longer than you should.”

Forbes reports that mortgage rates have gone up but they’re historically low, “Interest rates on mortgage have increased since the election of Trump. And, over time, interest rates are expected to increase further. However, by historic standards, interest rates are still very low. If you have a variable interest rate, now might be the time to lock in a lower rate. But the advice doesn’t change: keep the term as short as possible to save the most money.”

Remember that, at the end of the day, it doesn’t matter how good the rates are. Ask yourself if this is the right decision for you.

“The refinance question shouldn’t be based on market timing, because it’s too difficult. It comes down to whether it truly makes sense or not, wherever interest rates are,” says Casey Fleming, author of “The Loan Guide: How to Get the Best Possible Mortgage.”


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