In the midst of a global pandemic many people are wondering if now is the time to refinance their mortgage. Some may be facing a financial burden and others may be looking to take advantage of lowering rates. Regardless of your situation, it’s important to do thorough research before you make a final decision.
Why You Should Refinance
One of the best reasons to refinance is if a lower rate is available. This year alone, mortgage rates have seen significant drops due to COVID-19. If current rates are lower than when you first took out your mortgage then refinancing can save you money on your monthly payments. To ensure that refinancing is worthwhile, it’s recommended that you refinance as long as the new rate is 1% lower than your original rate.
Refinancing will also lengthen your mortgage term but reduce your monthly payments. You will have to pay for longer, but the payments will be more spread out so you will have less of a financial burden every month. This option is especially helpful if you plan to stay in your home for an extended amount of time.
Whether you are buying a home or refinancing a mortgage, you will have to pay closing costs. Closing costs are the fees charged for the services and expenses associated with finalizing a mortgage. These costs can differ depending on the situation, but on average they are between 2% and 5% of the loan. It is most cost effective to pay these closing costs out of pocket. Otherwise, you will be paying interest on these costs while also paying for the loan. Before refinancing, be sure that you are able to pay for the closing costs.
Knowing Your Situation
Before making a decision, it’s important to review your situation. What are the terms of your current mortgage? What are your plans for the future? You should determine whether you want to extend your mortgage term, lower your monthly payments, or change the type of mortgage you have. When reviewing your plans, determine how long you intend to stay in your home and if refinancing would be worthwhile. It’s also important to be aware of your credit score and how much equity you have in your home as these will determine your rate. Make sure you have enough savings to cover closing costs and other fees.
Now may be the time for refinancing your mortgage. There are plenty of benefits to refinancing, including lower rates and decreased monthly payments. Review your situation and your options to be sure that you are getting the best deal and making the best choice for you.
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