As a homeowner, the opportunity to refinance your mortgage can seem like a great way to save money in interest or your monthly payments. Refinancing can be a great way to improve your financial portfolio and take advantage of lower interest rates. While the idea of paying less money on your monthly mortgage bill or shortening your mortgage term seems ideal, sometimes, refinancing is not always the answer. The vLoan team has gathered some reasons on when to avoid refinancing your mortgage.
Interest Rates Cannot be Lowered to Offset Refinancing Costs
Refinancing is a service and often isn’t cheap, so run the numbers to be sure refinancing your home is not going to cost you more money in the long run. Depending on your refinance situation, you may add years onto your loan in exchange for the lower rate and with that you need to make sure you can recover the refinancing costs. To find the break-even point in your refinance, determine the overall closing costs with your mortgage advisor calculate how much you would save each month by refinancing and divide the closing costs by your savings to find how many months it will take to break-even.
Trying to Pay off the Loan Sooner
Instead of refinancing to a shorter-term mortgage, which typically comes with a higher monthly payment, consider making extra payments on your loan to pay it off sooner. Going this route can save you from paying refinancing costs.
Selling your Home in a Few Years?
When you start to consider refinancing, sit down and think about how long you are going to be staying in your home. If you plan to move in one or two years, refinancing may not make sense it will cost you more money in the long run to refinance. Ideally, you want to keep your refinanced loan past the break-even point because to actually start saving your money.