Benefits of Refinancing a Home Loan
Like most home-owners, you’ve probably heard compelling reasons for refinancing your home loan:
- Keep your payments stable with a fixed-rate loan
- Lower your interest rate.
- Get cash out from your home’s equity
- Consolidate debt
But how do you know if it’s the right time for you to refinance?
Many sites like Lending Tree have great mortgage refinance calculators, (check for example Mortgage CheckUp) that helps you compare your home mortgage to current loan options and interest rates, and decide if refinancing is a smart move.
Here are a few basic questions you need to ask yourself about your home mortgage before you decide to refinance.
1. Can I afford that my home mortgage expenses fluctuate? If so, you can probably safe a lot, and/or settle your loan much faster, by deciding to refinance your home loan to for example flex-rate. Of course you have less security if the rate suddenly rises violently. But if you can afford the worst case scenario, now (while interests are low) is probably the time to pay a bigger share to the loan instead of having your mortgage mostly consisting of interests.
2. Does my home have any equity and do I have one or more high interest loans?
I this is the case we would certainly recommend having your consumer loans “moved” to your less expensive home loan.
So in this case it is a good idea to refinance home mortgage!
On the opposite – if your plan is to cash out through a refinance of your home mortgage and buy a new car for the money, we would strongly discourage doing so. This is always a bad idea and if the market fluctuates you can quickly end up having a bigger loan than your home is worth.
Of course you should always check what the expenses are for a refinance of your loans before taking any action. Ask your advisor for a complete overview of all expenses and have it on paper!