For some buyers, refinancing a home and paying the fees for that is well worth it because they’ll save a great deal on their mortgage over time with a lower interest rate. Still, if you’re planning on refinancing a home it’s important to consider the pros and cons of doing that. One of the big pros is that a home refinance can actually save you money. If done right you’ll have a better rate and terms, and you’ll also have more money in your pocket each month. Those are all good things, but it takes some effort to refinance and there are fees involved. Consider it carefully before making a final decision. Here are five ways that refinancing your home can help you save money, which you can use for something else.
1). How much is your current interest rate?
If you bought when the market was hot, interest rates were probably high. That means you could be paying more than you need to for your home. Even if it’s not a hardship to pay your mortgage the way it is, you may be able to save a lot of money if you refinance your house. If your current interest rate is more than one full percentage point above the interest rate you could get today, you can benefit from a refinance in most cases. Some people are still paying interest rates that are several points higher, and they could definitely see a big benefit if they would refinance their homes. There is the potential to save hundreds of dollars a month with a lower interest rate, depending on the amount of the mortgage.
2). What kind of new rate can you get?
When you want to lower your house payments and save money, refinancing to get a much better rate can be the key. Compare your current rate to the rate you could get today. Of course, you’ll want to be sure of the rate before you proceed with trying to refinance. By talking to your lender and providing them with some financial information, they can let you know the rate you would actually qualify for on a refinance. That may be different from the lowest available rate, depending on your credit report and other factors. If you can get a good rate, though, you’d see a much lower payment and have the opportunity to save tens of thousands of dollars over the life of your loan.
3). Will you keep more money in your bank?
If you refinance and you aren’t paying out as much money for your mortgage payment every month, you can keep more in the bank. Assuming you have an interest-bearing account, or you take that money and invest it, you’ll have the chance to build wealth. With a much higher mortgage payment that may not be possible. Every little bit of extra money can help, whether you let it accumulate in the bank or you decide to take it out and put it into an investment that you can use to add to your assets. Either option can be a good one, depending on your financial goals and what you intend to do with that money in the future. The important thing, though, is that the money can be used for something else because it’s not automatically going toward your mortgage payment.
4). Have home values in your area gone up?
You may be able to save big on your mortgage if the values in your local area have risen. That’s a great time to refinance, because your home’s value should be high enough to do so more easily. That doesn’t mean you should get extra cash out of your home, though, even if you have the equity to do so. The idea is to save money, and creating extra debt usually doesn’t help with that. If you can get extra cash at a low rate and use it to pay off debt that’s got a high interest rate, though, that could be worth it. You’ll want to analyze your finances carefully if you’re going to do that, in order to make sure that you’re choosing the right option and that you’ll be able to actually save money with that particular option. Otherwise you could end up with more debt, instead of savings.
5). How will you use the money you get?
When you want to refinance your home, you should carefully consider what kinds of fees you’ll have to pay to do that. Those fees will eat into any benefit you get from refinancing. However, in most cases you can see a benefit that far outweighs the costs if you have an interest rate that’s quite high and you can refinance into one that’s much lower. Then you have to decide how to use the extra money you’ll have. Leaving it in the bank works, but there are also other choices. If you invest the difference between your old mortgage payment and your new one, you could end up with a nice little nest egg that you could use for something important to you, no matter what that is. To see whether refinancing is really right for you, and how much money it could save you, it may be time to talk to your lender and see what they can do for you.
2 Point Highlight
When you want to refinance your home, you should carefully consider what kinds of fees you’ll have to pay to do that.
For some buyers, refinancing a home and paying the fees for that is well worth it because they’ll save a great deal on their mortgage over time with a lower interest rate.
