Should you refinance your mortgage?
There are 4 key reasons why the answer may be "yes."
No. 1: Either interest rates are about to pop, or they've dropped a bit and you want to capitalize on that opportunity.
Two: You're in an adjustable-rate loan that's about to reset.
Three: You want to pull some cash out, maybe to pay for college or because you're getting divorced.
And four: Your credit has actually improved and you're looking at this as a chance to lower your mortgage rate.
Refinancing can be a costly move financially, so here are the things that you need to know.
Don't panic if rates start to rise. Maybe your credit wasn't in the best shape when you took out your loan originally. You may still be able to make some decent money by refinancing at any point in time. It's about the deal for you, not the best deal overall.
Second, watch out for those cash out refis. We saw during the housing crisis that a lot of people put themselves in very precarious financial shape by pulling too much equity out of their homes. And be doubly careful of using a cash-out refi to consolidate credit card debt. Make sure, if you're going to do that, that you're going to put those credit cards on ice.
By refinancing from one FHA loan into another, you may be able to save yourself hundreds on those insurance premiums alone, and if you can get out of an FHA loan into a loan by Fannie Mae or Freddie Mac, you may be able to get rid of mortgage insurance entirely.
Remember you have to run the numbers on any refinance deal, and that means figuring out how much this refi is going to cost you, and dividing by the amount that you're going to save every single month with your new mortgage rate. If you're going to be in the house long enough to make your money back, that's a deal you should say "yes" to.
If you've got friends and family who are thinking of refinancing as well, make sure you share this information with them.