JLM Blog | Is a Mortgage Refi Still a Good Idea?Real Estate News, Updates, and Tips
Multifamily Real Estate Agency San Diego, CA
Article published on April 14, 2022.
Refinancing a mortgage can be a smart move if you do it at the right time. However, refinancing might not be a wise decision for all.
Hence, you will have to understand your existing mortgage and marketing condition before going ahead.
Before applying, revisit your current mortgage, including the interest rate, duration, and market condition. If you find refinancing can reduce your monthly payments and interest rate, you can consider refinancing your mortgage. If there is no such possibility, you can stick to your current mortgage.
When does mortgage refinancing make a sense?
Mortgage refinancing can make sense when it helps with an affordable solution. Yes, you can consider when it enables you to pay less than the current amount. You can expect this benefit in the following conditions.
Mortgages rate is less
The mortgage rate fluctuates due to different factors, including market movements and inflation. If the mortgage rate has come down, you can get a lower interest rate than your existing loan. If the interest rate is one or two percent below your current rate, you can think of refinancing.
Also, you will have to consider the loan term. For example, you have taken a 30-year loan. You have already paid for five years. While refinancing, if you consider taking a 30-year loan, you will have to repay it for thirty-five years. As a result, the interest rate will be more since you have already paid for five years. Hence, you will have to check the mortgage rate and the loan duration before going ahead.
Have Better Credit
Your credit will play a determining role in the mortgage rate. With a good credit score, you will get a lower interest rate. If you have a good credit score in the current condition, you can refinance your mortgage and lower the interest rate.
Want a short-term loan
If you want a short-term loan, you can consider refinancing your mortgage. A short-term loan means you will have to pay less in interest. However, you will have to pay more in monthly payments. Before planning the next step, make sure that you can afford to pay the increased monthly amount. You can talk to an expert in multifamily real estate San Diego to know the benefits and downsides. It is better to consult experts to avoid any risk.
Change in loan type
You can also consider refinancing to convert your loan from an adjustable to a fixed rate. If you think that interest rates are uncertain, you can change the mortgage from adjustable to fixed. If you choose a fixed rate, you will not have to bother about the changing market condition. Your interest rate will remain the same regardless of the market condition.
When does a mortgage refinance not make sense?
As stated earlier, refinancing might not be suitable for all. Here are a few conditions when you can avoid refinancing.
Fees are unaffordable
It is worth mentioning that refinancing might be expensive. While considering this option, you will have to check the fees. You will have to pay an organization fee, a mortgage application fee, and an appraisal fee. Go through the amount and make sure that you are still making profits with refinancing. If you feel that the cost is not affordable, you can drop the refinancing idea.
Done with the repayment
You can consider refinancing your new loan. The benefit is a reduced interest rate. But when you have almost paid your loan, you should avoid refinancing. Refinancing means you will have to start again. For example, if you have paid for ten years for a 30-year term and you will refinance it for thirty years, it will not help you much. You will have to spend more on the interest rate. You can calculate the interest rate and the overall cost to avoid confusion.
Pros of Mortgage Refinancing
- Reduced interest rates
- Pay off your loan fast
- Stabilized interest rates
- Short-term loans
Cons of Mortgage Refinancing
- Restarting the loan term
- Increased monthly expenses
- Closing costs
- Refinancing costs
Refinancing will require your effort and time. Also, you will have to understand the process and complications. It involves additional paperwork and expenses as well. Hence, you will have to weigh the positives and negatives before deciding.
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