If you’re tempted to refinance your mortgage to take advantage of low refinance rates, you may be on track to a smart financial decision.
That’s because today’s low refinance rates can make a huge difference in your monthly mortgage payment. For example, a rate reduction of just 2 percent on a $200,000 loan could lower the payment by $257 each month.
That’s a significant savings. And the savings could be even higher if you’ve improved your credit score enough to qualify for a more attractive rate than you were offered when you got your current mortgage.
But the decision to refinance, regardless of how low the refinance rates may be, should also take other factors into consideration.
How long will you own your home?
One factor should be how long you expect to own your home. If you’re planning to move within a few years, refinancing may not make sense, even if you could get a lower interest rate.
That’s because refinancing isn’t free, and the savings on your payment might not be enough recoup the upfront costs before you move.
You may be able to lower the upfront costs if you’re willing to accept a slightly higher interest rate. But that could mean that it wouldn’t make sense for you to refinance.
How much will it cost to refinance?
Refinancing can cost hundreds or thousands of dollars, depending on the loan amount, the type of loan, the region of the country where the property is located and other factors. Typical costs include an appraisal fee, credit report, title insurance and closing or attorney’s fees.
Reasons to refinance a home loan
Other good reasons to refinance include:
- Replacing an adjustable-rate mortgage with a fixed-rate loan.
- Extending the initial fixed term on a hybrid loan.
- Taking cash out to consolidate debts, pay other expenses or buy another property.
- Combining two loans into one.
- Avoiding a balloon payment on your current loan.
- Shortening or lengthening the loan term.
Low refinance rates could help you qualify for a new loan and achieve any of those objectives.