If you’re thinking about refinancing your property, there are four points you must consider before making a decision:
1. What is your current interest rate (and will you be dropping at least 1% off of it)? For example, if your current rate is 5% and you’re dropping it down to 4%, then refinancing is a good decision.
2. Are you leaving behind some type of short-term financing? In other words, are you looking to secure a 15- or 30-year fixed-rate mortgage, or is there a cash-out option that allows you to pull equity out of your home?
Make sure you do the math and verify that the closing costs are worth it.
3. How old is your current mortgage? The longer you’ve had your current mortgage, the more of your payment goes toward your principal instead of interest. When you refinance, you’re starting the whole interest table over again, which means you’ll start those payments with a larger interest payment (which will decrease as the mortgage matures).
4. How long do you plan on owning the property? When you refinance, you have to pay closing costs, which usually make up about 3% of the mortgage amount. Make sure you do the math and verify that the closing costs are worth it. If you only plan on staying in your home for another two years, they probably aren’t.
As always, if you have any questions about this or any other real estate topic, don’t hesitate to reach out to me. I’d love to help you.