While it may take some time to cross the break-even point, a refinance is a good idea if you are planning to stay put for awhile.
Pros of refinancing your mortgage
There has been a lot of buzz in real estate news lately due to continually decreasing mortgage rates. Low mortgage rates are not normal throughout financial history. Current rates are nearing historic lows. For historical data about mortgage rates, check out Freddie Mac archival data recorded since 1971.
Mortgagors need to be give serious analysis to these low-interest conditions when they do occur. As of last week, the average 30-year fixed rate mortgage fell to 3.97%. For some homeowners, refinancing your mortgage can lead to great savings.
Cons of refinancing your mortgage
However, there are several instances that refinancing can be harmful. First of all, one needs to determine the break-even point. At this critical point, the costs of the refinance closing are covered by the monthly savings of a lower interest rate loan. Other mortgage related questions arise as well. How many years left do you have on your mortgage? Could you shorten the length of your mortgage? How much lower is the current rate than your current rate? These are questions to ask your lender and/or financial adviser.
In the end, your financial goal will largely be determined by the future plans of your home and your debt to asset tolerance. A riskier positioned individual will choose to perhaps even leverage more debt while rates are low. Conversely, a fiscally conservative mortgagor will take the opportunity to lower interest payments if the property is a long-term investment.
Before you decide to refinance, make sure to do your research to you keep yourself informed to guarantee that you choose the mortgage that best suites your situation.