Should You Refinance Now? What Homeowners Need to Know

Should You Refinance Now? What Homeowners Need to Know

While we continue to navigate the cultural and economic ramifications that the COVID-19 pandemic has had on our society, homeowners who have put off refinancing their mortgage may be wondering if now would be the time to do so. While many people are uncertain about how changes in the economy could affect their financial security, countless homeowners are choosing to take advantage of historically low interest rates to refinance their mortgages, allowing them to assert some control over their financial future.

Related Blog: 4 Ways to Improve a Credit Score for Refinancing

Question to Ask Before Refinancing

Yet, with so much uncertainty and volatility existing in our current economy, you may be wondering if this is truly the right time to refinance your home loan. To help you make this important decision, here is a look at a few of the things you should consider when trying to decide whether to refinance your mortgage. 

What Is Your Goal for Refinancing?

When trying to decide if refinancing your mortgage is right for you, you must first determine what your goal is for refinancing. For instance, some people refinance in order to lower their monthly payment or to pay their home off quicker. 

Alternatively, you may be interested in a cash-out refinance, which allows you to tap into your home's equity by replacing your current mortgage with one that's higher than your current balance, allowing you to withdraw the difference. This money can then be used to perform home repairs, help you consolidate debt, or create a safety net in case of a drop in income. 

Knowing why you want to refinance is important in helping you to determine if refinancing makes sense for you.

Does Refinancing Make Financial Sense?

Once you know why you want to refinance, you will need to determine if doing so makes financial sense for you. While snagging an interest rate as low as in the 2% range can be an exciting prospect, this does not necessarily mean that refinancing right now is right for you. 

If your ultimate goal in refinancing is to save money, you will have to determine how much refinancing will cost you vs how much you will stand to save.

The fact is that refinancing isn't free, and there are costs that must be paid such as appraisal fees and closing costs. Once you find out what interest rate and mortgage payment you qualify for, you will have to decide if the savings justify the initial expenses. 

Ultimately, this will likely depend on how long you intend on staying in your current home, as it could take a year or more to see any savings. 

However, with interest rates as low as there are, many homeowners who plan on staying in their homes for the long-term can likely benefit from current interest rates. 

What is Your Credit Score?

Ultimately, one of the biggest factors that will influence whether refinancing makes financial sense for you is your credit score. The higher your credit score is, the more likely you will be to qualify for a favorable interest rate. 

If you are unfamiliar with your credit score, and/or you haven't checked it in a while, doing so now can help you to decide if refinancing makes sense. If you are determined to refinance but your credit score is not where you would like it to be, try to work on consolidating and paying off debt. 

Doing anything that you can to raise your credit score will go a long way in helping you to score a low interest rate. 

If you have any questions about mortgage rates and home loans or are ready to take the next steps, contact Lendsmart today to speak with a mortgage agent today.

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