Every time you turn on the TV or open your mail box someone is trying to convince you to refinance your mortgage. You’ll hear/read a lot of words like, “ Rates at an all time low! ” and “Refinance your current mortgage and get big cash back!” etc.
But whether or not if it is the right time to refinance depends completely on your circumstances. Like anything else, you are the only authority that needs to determine if refinancing is right for you depending upon the specifics of your mortgage loan.
Here are some guidelines to assist you in the right decision making process:
The Break-Even Analysis: Approaching a mortgage refinance company makes sense only when you can lower the interest rate enough to easily pay for the closing costs before you sell your home. In simpler terms, calculate how long do you plan on staying in this particular home and then calculate how much you’ll save each month to compensate for the closing costs of refinance. Refinancing only makes sense when you stay in the house long enough to compensate for the closing costs of refinance with the monthly savings.
Going from 30 year loan to 15 year mortgage: Another way in which refinance can help is if you plan on not lowering your monthly payments, but increasing them. If you have a 30 year mortgage and you feel that you can afford higher payments easily.
You might want to save on the interest and reduce your loan term. With a 30 year mortgage, you pay double in interest than what you pay in a 15 year term. So if you can afford the higher monthly payments and plan on living this home for another couple of decades, it makes sense to reduce the loan term to 15 years.