Should I Refinance My House

Every homeowner occasionally wonders, "Should I refinance my house?" House payments make up a major portion of most people's monthly budgets, so it's natural to think about taking steps to save money on this major expense. There are many situations in which getting a new mortgage can help people save significant amounts of money.

Is refinancing a good idea for me?

Even small reductions in interest rates can make a big difference in mortgage payment amounts over time. Generally speaking, it's considered a good idea to refinance if you are planning to stay in your house for five or more years and can reduce your interest rate by two percent or more.

In some situations, it may be beneficial to get a new home loan even if you aren't planning to stay in your home for that long or if the interest rate reduction isn't as great. For example, if you are able to get a zero closing cost loan that reduces your interest rate significantly, it may be advisable to do so if you even if you expect to move in the near future. Remember to make sure that the zero closing cost loan is actually without closing costs, and isn't just a loan with the closing costs rolled in.

Adjustable rate mortgages (ARMs) can be risky, as payments can fluctuate significantly based on market conditions. Unless you are planning to sell your home before the next rate adjustment, you may want to consider investigating the benefits of replacing your current home loan with a fixed rate mortgage.

When thinking about refinancing an ARM, it's important to think about more than just comparing interest rates. If you are in the initial period of an adjustable rate mortgage, your current interest rate may be lower than the going rate for 15 and 30 year fixed rate home loans. However, you have to think about what will happen to your interest rate and monthly payment when it's time for your rate to adjust.

With an ARM loan, you have to think about what your loan is going to cost you in the future in addition to the current cost. You may be just a few months away from having to deal with skyrocketing interest rates and payments that increase beyond your financial means. It's important to take the long term consequences of having an ARM into consideration when deciding whether or not to refinance to a fixed rate loan.

If you are carrying balances on credit cards or have other high interest rate debt, you may be able to save money and get out of debt faster by taking advantage of a cash out home loan refinance. If you have enough equity in your home, you might be able to get enough money through refinancing to eliminate the most expensive debts you are carrying.

Many times, people are able to refinance their homes and pay off all their high interest debts without even experiencing an increase in their mortgage notes. Even if your house payment does go up as a result of a cash out refinance, it's likely that your overall monthly cash flow will improve significantly once your other debt is paid in full from the proceeds.

It's hard to know if refinancing is the best choice for your particular situation without doing some research and looking at some real numbers. A reputable loan officer or mortgage broker can be an excellent resource when you are trying to decide if refinancing is a good idea. Find a qualified mortgage professional who is knowledgeable about refinancing and willing to spend time reviewing your situation. He or she is likely to be able to help you understand whether or not refinancing will benefit you, and point you in the direction of available loan products that might meet your needs.

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