So, you've lived in your house for a while and have been happy sending in your monthly mortgage payment. But when you watch the evening news and see that mortgage rates are 1% lower than what you locked in 10 or 15 years ago, you realise quickly that you may be paying more than you have to in interest rates on your mortgage. Refinancing is an option that millions of people use every year to "check the health" of their mortgage, lock in lower rates, or take advantage of rising property values to make improvements to their homes.
Nobody wants to pay more for something than their neighbour did, especially for their house. Refinancing is just as much a part of getting a mortgage these days as getting a mortgage to buy a new home. A smart homeowner knows that interest rates go up and down and that by keeping track of where they are now, they can save a lot of money over the life of their mortgage note by locking in a lower mortgage rate now, even if it means paying a little money up front. By paying off their old mortgage and writing a new one, refinancing helps millions of homeowners get lower rates on their loans.
As with any other financial transaction, you should look carefully at all the costs of refinancing as well as the possible benefits and risks. Most of the time, you shouldn't refinance if you only have a few years left on your mortgage. You won't save enough on interest to make up for the fees you have to pay to rewrite your mortgage. Some experts say that you should refinance when at least 40% of your monthly mortgage payment still goes toward interest fees.
If you do decide to refinance, it's important to remember all the tips we've talked about before when looking for a mortgage. Get a lot of bids from different companies, keep an eye on the fees, and make sure you read and understand the risks.
Many homeowners also refinance their mortgages to "cash out" some of the equity in their homes after the value of their homes has gone up. Say your child is ready for college and you need to figure out how to pay for it. When you got your 30-year mortgage 20 years ago, your home may have cost you $100,000. Now, it may be worth $200,000. By refinancing, you can write yourself a check to pay for home repairs or other needs. It is easier and costs less than getting a second mortgage to get the money.
Refinancing can be one of the best ways to handle your money if you do it right. Not only could it save you thousands of dollars in interest by getting you a lower rate, but it could also help you pay for other things you need in life by letting you use the money from your home's rising value. One more reason why buying a home is one of the best things you can do for your money.
