How Do I Know If I Should Refinance

Has the thought ever crossed your mind, how do I know if I should refinance? Plenty of homeowners ask this question so you are in good company. The answer is a simple one but we need to consider a few items before reaching a conclusion.

A refinance means that you will take out a new Loan to pay off your existing loan. Undoubtedly, the terms of the new loan will be radically different from your current loan. You should refinance only if the terms of the new loan are better than the terms of the existing loan. You want to be ahead financially after the deal closes; otherwise, what’s the point of refinancing?

The first step is to determine what the terms are of your current loan. Pull out your Mortgage paper work or check with your lender or loan servicer for the details. Basically you are looking for the mortgage balance, the remaining years left on the loan, and the all important interest rate. Once you have this information in front of you, you can begin shopping for a refinance. Other important factors exist though.

If you are thinking how do I know if I should refinance you also need to compare your current payment with the new payment and whether or not you need to pay any closing costs for the refinance. You should also consider whether to take any cash out of the equity of your home. Be careful here though, as this is where many people made mistakes in recent years. Don’t take out cash if it will be a burden to pay it back in the coming years.

The key question is can you lower your interest rate by at least 1%? If the answer is ‘yes’, then you most likely should refinance your home. A one percentage point reduction in interest rate will severely reduce the amount of interest you will pay over the life of the loan. Another consideration is reducing your term to a 15 year term rather than a 30. The decrease in interest may also lower your monthly payment substantially

- How Do I Know If I Should Refinance