The answer to that question could change several times throughout a given day. It all depends on the current available interest rate, how much refinancing will cost you and how long you will be staying at your current residence. I just left an attorney’s office after refinancing my mortgage. Even though I bought my home only 7 months ago and had a pretty good mortgage rate, my husband and I couldn’t pass up the 4.75% rate we locked into last month. It will save us $118 a month on our mortgage payment, which to some people may not seem like much, but to us that’s like getting free electricity and water every month!
It’s important to consider how long you’ll be in your current residence and how much refinancing will cost. Refinancing cost us roughly $3000 which means we’ll need to stay in our current residence just over two years in order to break even. But there are other benefits. By lowering our monthly bills we feel like we’re being more responsible with our money and we are better prepared for any bumps in the road that we may encounter. And in a recession, bumps in the road are pretty much inevitable. So how do you know if it’s the right time for you to refinance? Here are some pros and cons to consider:
Pros
1. Do you have an ARM or adjustable rate mortgage? If your current rate is higher than available fixed mortgage rates, you may want to research the possibility of refinancing.
2. When will you break even on your refinancing costs? Figure out how many months it will take for you to make back the expenses of refinancing. Will you be living in your home that long?
3. Do you have two loans? Now may be the time to combine them into one by refinancing.
Cons
1. Do you have bad credit? You may want to wait to repair some of your credit mistakes in order to get a better rate when refinancing.
2. Thinking about moving? Refinancing may not make sense if you’re not planning on staying in your home long or if there’s a chance you’ll be asked to relocate for your job.