More money? Lower interest rates? Better loan terms? The reasons to refinance can sound so amazing and enticing — perhaps you’re wondering if it is the right move for you. Refinancing can make sense in some situations, but not all.
Refinancing for lower interest rates is a very popular option and can add up to a significant sum over time. But, before you run to your bank, let’s talk about what you need to consider. First, ask if you will be responsible for closing or appraisal costs — just as you would for your initial loan. No one likes hidden costs. In addition, look out for the length of the loan. Are you are starting over on a 30-year mortgage? Refinancing for a period longer than the term left on your current loan is not recommended.
Another reason to refinance for all you first-time buyers — converting from a variable-rate loan to a fixed-rate. Now that you have more equity (hurrah!) and stronger credit, you might be able to secure a better more flexible loan. You may also be able to consolidate or pay off other higher-interest debts (hello cars and credit cards) when you refinance.
Refinancing offers are everywhere and it may be a great time to take advantage of lower rates. However, remember to consider all the costs associated with a refinance before assuming it’s a good financial decision.