With the pandemic, interest rates have hit all-time lows. So, the big question going around lately is should you refinance your home? Personally, I’m strongly considering taking advantage of this opportunity. I purchased my home a little over a year ago (first-time home buyer) and didn’t get a terrible rate, but didn’t get an awesome rate either. So, I’ve been doing a lot of research and due diligence to determine if now is the time to refinance. Below are the 3 main questions I asked myself to make the best decisions for refinancing.
What is your goal for refinancing?
First, you should think about what is your end-goal. Are you trying to lower your mortgage payment, lower your interest rate, get cash out of your mortgage, or remove mortgage insurance? Deciding what your end-goal is for refinancing is the first and most important step to starting the process. Knowing what you are trying to accomplish will help you to determine if it’s worth it in the long run. I have decided my main goals for refinancing are to lower my interest rate, remove the mortgage insurance I had to get when initially buying my home, and ultimately lower my mortgage payment. I found this article by Investopedia very helpful in determining the pros and cons of refinancing.
If you’re looking to take cash-out, check out this calculator to help determine if it’s worth it in the long-run.
Should you buy points?
Do not buy points or roll them up into your mortgage. Points may seem attractive to get a lower rate, but ultimately raise your mortgage balance and interest you’ll pay over time. If you are planning on staying in your home for a long time then buying points for a lower interest rate might be a good move, but if you plan on selling in the next 1-3 years it might not be worth the extra $$. I would say if you are staying in your home for a long time and you can pay for the points cash versus rolling them up into your mortgage then it might be worth it in the long run on interest. You can determine if buying points is the right move for you by using this calculator. As my mother (who is a Realtor Broker and Insurance Agent) always says, “Never add to your mortgage balance!”
Should you roll-up closing costs?
This question is a tough one, as I know I don’t have an extra $3-6k laying around for closing costs. However, it’s in your best interest to not roll-up closing costs into your mortgage balance even though mortgage brokers will strongly encourage you to do so. Ultimately, if you do this you will end up paying interest on those closing costs, as well as, increase your mortgage payment. It may not seem like a lot of extra money for a single month (usually less than $10 extra dollars), but over time those extra dollars add up. If you are able to save up to pay for the closing costs out of pocket, it’s the best way to go!
Good luck and get multiple offers. I was able to get my interest rate down by 2.5% without buying points, removed my mortgage insurance, and my closing costs ended up being only $3000! I’m very happy with the results of my refinance.
Sources Used:
https://www.mortgagecalculators.info/calc-cash-out-refi.php
https://www.mortgagecalculators.info/calc-recoup.php
https://www.mortgagecalculators.info/calc-discount.php
https://www.investopedia.com/mortgage/refinance/when-and-when-not-to-refinance-mortgage/
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