Is a refinance always a good idea? Maybe, but maybe not.
It's a great time to refinance. Or is it? What's good for one might not be good for another. That applies to refinancing your home as much as it does to anything else in life. When you hear about great rates and friendly mortgage terms, it's not as universal as it might seem. Your situation might not benefit from the process, even if your neighbor's does.
So if you're thinking about whether you should talk to a lender, remember that it's not quite as simple as whether the rates are low. Here are 3 different takes on whether it really is a good time for you to refi.
Better money management skills could pay off in a better rate.
Is Your Credit Better Now Than it Was?
The terms that you've got on your current mortgage depended heavily on your credit rating when you financed your home. A good score probably meant that you got reasonably good terms, at least good for the time, and a poor score probably meant the opposite.
If your credit has improved since then, you might qualify for a much better interest rate. That's especially true if you've had your mortgage since 2000, when FreddieMac says 7 or 8 percent was considered a fairly competitive rate. Better credit often equals better terms, so it might be worth looking into.
Staying put for a long time gives you the biggest advantage of refinancing.
Do You Plan to Pay Off Your Mortgage?
Is your home your castle, and do you plan to live there indefinitely? Refinancing at a better rate saves a lot of people a lot of money, but there really is a big caveat: If you refi and then move in a few years, you probably won't see any real benefit after all.
A refinance comes with most, if not all of the same costs associated with your first mortgage. Once the closing costs are factored into the deal, it might take several years for you to break even. Before then, you haven't really saved money at all. In fact, Yahoo Homes says you've probably lost money. So if you don't plan to stay put, it's probably wiser to let a tempting interest rate pass.
Are You Only Interested in Cash Out?
Cash-out refinances used to be fairly common. They aren't as easy to get any more, but they are still possible. If you have plenty of equity, you could refinance your home, hopefully for a better interest rate, and get a nice check in the amount of part (not all) of the equity. You don't really cash out your equity, though. That's a bit of a misnomer. What you get is a bigger mortgage loan than what you really owe on the house, with the overage being based on the amount of equity that you have. The check that you receive is financed into the new mortgage.
If you need cash, there might be better ways to go about it than a cash-out refi. For example, refinancing to tap your equity just to buy a car means that you're really financing that car for 30 years, if you get a 30-year mortgage. A traditional vehicle loan might be a better idea.
Interest rates are still good, even though rumor has it that they won't hold that way for very much longer. And under the right circumstances, refinancing your house could result in lower monthly payments and paying less overall in the long run.
Be sure to look at the deal from all sides before you commit. Just because it's a good idea for your neighbor doesn't mean that it's the best idea for you.
Learn more about whether it's a good idea for you to refinance your home with this eppraisal mortgage article, 4 Top Reasons to Refinance Your Home.