The Pros and Cons of Refinancing
When rates are low, refinancing your home can be incredibly beneficial. Consider these pros and cons of refinancing before making any decisions.
The pros of refinancing your home:
Lower interest rates. By refinancing your home, you can lock in a lower interest rate. A lower interest rate on your mortgage means smaller monthly payments, and more of your payments going toward paying off the principal of your loan.
Shorten the term length. Choosing to refinance when rates are low, means that you can go from a 30-year to a 15-year loan. A 30-year will earn more in interest in the long run than a shorter-term loan, which can help you save money on interest. Plus, paying off your loan quicker, means you’ll be debt-free faster, even if your monthly payments don’t change.
Access cash from the equity you’ve built. Home equity is the difference between the appraised value of your home, and the amount you still owe on your mortgage. Increasing your equity can help improve your finances. As you’ve owned your home, made improvements on it, and paid off your mortgage over the years, you’ve built up equity tied to your home. Refinancing can give you access to that equity.
The cons of refinancing your home:
Is the change in rate significant? When deciding to refinance your home, you must consider if the rate change is significant. Refinancing is a long process that takes time. If your financial situation has not changed much since taking out the initial loan, you may not need to refinance.
Refinancing takes time. Refinancing your home is a lengthy process that cannot be completed in a day. It takes quite a bit of resources, time, and money, to secure a lower rate. If the rate is not going to make a significant difference, refinancing may not be necessary at the moment.
Fees. There are often fees associated with refinancing your home, so you need to weigh the benefits, with the amount it will cost you. The cost to refinance can range from two percent to six percent of your loan amount depending on the size of your loan, your lender, location, credit score, available home equity, mortgage term and mortgage type.
Still debating whether to refinance? Speak with your financial planner for more information.