Tuesday, December 18, 2018

Is Refinancing Ever Not a Good Idea?

by Hicks Crawford (writer), , September 24, 2015


Learn when it definitely makes sense to refinance your mortgage and when it might make sense to wait.

Do you know if it’s a good idea to refinance your mortgage?

Most people assume that the answer is a straightforward one. If mortgage refinancing results in a lower interest rate or more amenable loan term, rank-and-file homeowners might assume that it makes sense in all situations.

However, there are certain times when mortgage refinancing might not actually be a good idea. As a homeowner, it’s important to distinguish between appropriate and inappropriate refinancing opportunities — while always keeping in mind that you should make your final refinancing decision based on your specific situation and in close consultation with an experienced professional.

When It Might Make Sense Not to Refinance

  • If you’re about to move. Homeowners who plan on selling their homes within the next couple of years may not be great candidates for refinancing because the closing costs associated with refinancing could end up being higher than any potential savings.
  • If you already have a very low interest rate. Homeowners often refinance their loan to secure a lower interest rate. If your rate is already very low and you’re not able to get a better deal by refinancing, it may pay to wait.
  • If your original mortgage is nearly paid off. If you’re going to own your home outright within a couple of years, the cost of refinancing might be higher than the potential savings.

When Mortgage Refinancing Might Be a Smart Decision

  • If your original rate is very high and you can secure a substantially lower rate. Homeowners whose current mortgages come with high interest rates stand to save thousands of dollars by refinancing at a lower rate.
  • If you can secure more favorable loan terms. Refinancing often provides a longer repayment period or other favorable terms that could ease your financial burden.
  • If you plan on being in your house for a long time. If you’re not planning on moving for a few years, refinancing is more likely to make financial sense.
  • If you want to tap your home’s equity, but aren’t close to paying off your original mortgage. In some cases, you may be able to refinance for more than the value of your original mortgage. This is known as a cash-out refinance loan, and it’s useful for tapping the equity in your home.
  • If you want to change your rate structure. If you want to switch from a variable-rate or adjustable-rate mortgage* to a fixed-rate loan, or vice versa, refinancing may offer the opportunity.

Learn Whether Mortgage Refinancing Makes Sense for You

While these considerations should give you a general sense about when mortgage refinancing makes sense and when it might make sense to wait, it’s important to remember that every homeowner’s situation is a bit different. There are plenty situation-specific factors that could affect your decision to refinance, including issues that have little to do with your mortgage. That’s why it’s so important to sit down with an experienced professional with mortgage refinancing experience and discuss your needs. You’ll be glad you did!

* Rates on variable-rate or adjustable mortgages may be increased after consummation.

About the Writer

Hicks Crawford is a writer for BrooWaha. For more information, visit the writer's website.
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