Should you Refinance?

For homeowners, a great way to get some quick cash is with a home refinance loan. They are usually easy to get based on the amount of home equity you have and they are usually at a lower interest rate than most credit cards, making them idea for debt consolidation and paying for college for the kids. But with the recent hikes in mortgage rates, is it still a good choice or would you be better off seeking extra cash from other avenues?

The first step in seeing if a refinance is right for you is to take a look at your current mortgage. The Federal Reserve has raised rates 15 consecutive times, and if you already have an adjustable rate mortgage, or if you’re looking to refinance to get one, you may want to think twice. The best thing you can do is to check out the promissory note that came with your original loan and see when your locked in interest rate expires, how much the bank is allowed to raise your rate per year, and how much your rate can go up for the life of the loan. For almost all loans, there are caps on how much it can be raised. Make sure you know your limits since market analysts aren’t predicting mortgage rates will be going back down anytime soon.

If you’ve crunched the numbers and you see that it’s worth it, than the next step is to calculate the costs. Refinancing can get pricy with all the fees, so once you see how much you would be saving per month, if it’s not significant, you might just want to stick to the loan you have, since closing costs on some refinancing loans can be as much as 3,000, and that doesn’t even include things like appraisal fees and originating fees.

The next step if you’re still interested is shopping around. And don’t be afraid to use the home computer to do so. There are great sites that will offer lower rates than your local bank, and even sites that will get multiple offers from many different banks for you. It’s a buyers market right now, make sure you take full advantage of it.

Refinancing is a major decision during one’s life and it shouldn’t be entered into lightly. But if you approach it with eyes wide open and you know the process, it can be rewarding and help you meet your financial goals.