- Refinancing makes sense in many circumstances.
- A refinance may not pay if the rate difference is not large.
- Weigh the costs over your expected life in the property.
Is Refinancing Always Worth It?
Every mortgage people see these days has a lower rate offered than their current one. Yes, interest rates are low, but that doesn’t always mean that you will benefit from applying for them.
There are many ways a refinance could cost you more in the long run. For instance, if you have had your current 30-year fixed-rate mortgage for 5 years and want to refinance to another 30-year loan, you would be resetting your timeline for home ownership by 5 years. Not only that, you will be increasing the number of years the interest will be charged. Add in closing costs and you really have to know that the interest rate is going to save you money. Luckily, there are a few signs that your refinance is saving you a bundle:
- Shorter Term: If you are shortening the overall length of time you will have your loan (i.e., going from a 30-year mortgage loan to a 20-year loan), chances are you will be getting a good deal from your refinance.
- Lower Loan Balance: If, after your refinance is completed, your overall loan balance is less than before the refinance, then you’ve made a great choice.
- Add the Difference: Add up a year’s worth of interest for both your current loan and the new one. What’s the difference? This will give you an idea of the annual savings of the new loan. Subtract the closing fees and you will be able to tell how soon the new mortgage will be saving you money.
Try the innovative Bills.com refinance calculator to learn if a mortgage refinance is cost effective for you and your unique circumstances.