From obtaining a better interest rate to shortening the overall term of your loan, there are many reasons why people may choose to refinance a mortgage. Like any major financial decision, this is not something to be taken lightly.
Could refinancing your current mortgage be a good move for you? Here are three questions to consider.
What are my Short-Term and Long-Term Financial Goals?
If you’re considering a refinance, your objective is to reshuffle your financial picture in some way. Maybe interest rates were high when you inked your initial mortgage, and you’re simply hoping to lock in a lower rate, thus freeing up some money each month. This strategy could also allow you to pay off your home sooner.
Another reason to refinance could be to switch from a 30-year to a 15-year loan. While this will increase the amount of your monthly payments, you will also pay your home off sooner. It’s important to consider your future finances to decide which aspects of a refinance will be in your best interest.
Do I Qualify for a Lower Rate?
Many factors such as credit score, your debt-to-income ratio, and the appraised value of your home can affect your mortgage rate. If your credit has taken a hit since securing your initial mortgage, now might not be the time to begin the process of refinancing—and you may not even qualify. Some lenders may also require you to have paid a certain amount toward the principal on your exiting loan before refinancing. On the other hand, if your credit and overall finances have improved in the time since you signed your mortgage, refinancing could be a good option.
Is it Worth it?
Like your initial mortgage, refinancing comes with closing costs. If your goal is to save money each month from the refinancing process, you must keep in mind that it will take time to recoup the closing costs and see a return on your investment. If you have money saved to cover these costs and can stick it out to see a return, closing costs may be a small price to pay in the big picture.
Refinancing is a serious decision that can have a major impact on your financial future. Trust the experts at First Ohio Home Finance to help explain your options and guide you through the process if you determine a refinance is right for your situation.