Is it a good idea to refinance your mortgage?
Updated: Sep 17, 2020
There is really no simple answer to this question, but there are three important things you should consider:
1. Interest rates. Interest rates are still at historic lows. However, you need to check what your current interest rate is. If you purchased your property less than five years ago, I don’t think there will be a great deal of difference between the rate you currently have and the rate you could get today.
2. There will be a hard inquiry into your credit. Every time this new lender reaches out to the credit bureaus, your credit score will drop by an average of five points. If you also have auto loans, department store cards, or other credit cards, your score could decrease very rapidly.
If you are going to move in less than five years, you won’t have time to amortize the closing costs.
3. How much longer are you going to live in your house? If you are going to live in the house for less than five years, you will not have enough time to amortize the closing costs included in the refinancing effort. Refinancing is not free. There are a few lenders out there who offer no closing costs for refinancing, but otherwise, you will need at least five years to amortize the closing costs. Closing costs are usually 2.7% to 3% of the amount you’re going to be financing.
I hope these three points are helpful. I would like to add that you should have a clear understanding of what your new monthly payment is going to be and what your new time frame is. This is going to be a fresh start on a 30-year loan unless you go to a 15-year loan.
If you have any other questions, please don’t hesitate to reach out to me. I would be happy to help you!