A mortgage refinance, also commonly known as a refi, can offer many different benefits to homeowners under certain situations. It is important to understand that a refi may only be advantageous if it offers such benefits as lower monthly payments, the ability the increase the homeowner’s cash flow or a lower interest rate that could result in large cost savings over the course of the loan.
Is a Mortgage Refi a Good Idea?
The answer to this question largely depends on your current situation. Therefore it is important to carefully evaluate your current mortgage as well as the prospective new mortgage to determine whether a refi would be beneficial for you right now or not. Typical situations that would make a refi a good idea include:
- Lower interest rates
- Existing equity in the home
- Improved credit scores
If you have poor credit you may be able to locate lenders who are willing to offer you a mortgage loan but the terms might not be the most favorable. In the event your credit improves, a refi can help you to obtain ore favorable loan terms such as fixed rates and lower interest rates.
If interest rates have recently dropped a refi can also make good financial sense. You can use a refi calculator to determine whether the drop in the interest rate is enough to result in a total cost savings. Generally a lower interest rate will result in lower monthly payments but if the rate did not drop enough to offset the closings costs related to the refi, right now might not be the best time to refinance your mortgage.
If you have existing equity in your home you may wish to consider refi opportunities as a home equity loan or home improvement loan can help you to use your home as collateral in order to obtain another loan. This new loan can be used to pay for home improvements as well as education, vacations and other expenses or could be a traditional refi that is used to repay an existing mortgage.