Should I refinance my home?
To Refi or not to Refi… that is the question...
Whether ‘tis nobler in the mind to stay the course and pay the piper his full due or to take arms against a sea of high interest rates and by opposing, end them.
Interest rates are so low these days that you have to be thinking that you’re paying too much, and maybe you are. The decision is a matter of doing some math.
Refinancing, taking out a new loan to replace your existing loan, looks like a winning proposition when you see rates advertised that are lower than what you’re paying. So let’s all take out our slide rules and see what’s involved and what are the hidden pitfalls.
Fees
"There's no such thing as a free lunch."
If you could simply call your lender and have them adjust your loan to today’s lower rates, how cool would that be? But that isn’t how it works. There are costs associated with taking out a new loan and you have to see how that enters into the equation. And don’t be fooled by the “no-cost” refis; that just means they’re burying the costs by rolling them into the loan. You may not have to write a check, but you’ll be borrowing more… and that can still be OK, if the result is a lower payment.
Consideration
If the fees for your new loan exceed the monthly savings over the life of the loan, or the time that you expect to stay in your present home, then you lose money by refinancing. If you plan to stay a good long while, then you come out ahead, but you’ll be making payments beyond the term of your original loan.
Your options
Length of loan
You could trade your 30-year loan for a 15-year loan and pay off your home sooner. With today’s rates, you might still have a lower monthly payment.
Fixed rate
You could take advantage of current programs and replace a potentially problematic adjustable-rate loan with the security of a fixed rate.
Cash-out-refi
You could do a cash-out refi to take equity out of your home to pay bills or make investments.
Consult with professionals
These are financial decisions that you should discuss with your financial advisor. At Faber Real Estate Team, we’re experts at real estate; we defer to the financial experts on other matters. And we can also refer you to one of our preferred lenders.