If you're tired of carrying a monthly mortgage, you have a few options at your disposal. First, you can focus on rapid repayment by making extra payments towards the principal of your existing loan. As a second option, can also refinance your home to speed up the repayment process. But, of those options, which one should you choose?
At the end of the day, the best option for you depends on how much you owe on your current loan, your current interest rate, the rate you might qualify for, and your credit score. This post includes a summary of instances where it can pay to refinance – and some times when sticking with the mortgage you have is a better deal:
You Should Consider Refinancing Your Mortgage If...
- Your current mortgage carries a high interest rate. As of today's writing, new home loans come with rates as low as 3.25 percent APR. If your current mortgage has a much higher interest rate, you could save money on interest and pay down your home faster by refinancing at today's low rates.
- You have good credit. Before you get serious about refinancing, it's crucial to make sure your credit score is in good standing. Without good credit, you may not be able to qualify for the best rates when you refinance. With excellent credit, on the other hand, you'll have access to the best home refinance rates on the market. Know where you stand before you move forward.
- A refinance still makes sense after factoring in fees. Whenever you refinance a home, you can bet that thousands of dollars in fees are involved. These fees can include escrow and title fees, lending fees, appraisal fees, and more. While paying these fees can be perfectly worth it if refinancing is saving you money elsewhere, they can be costly if your margin of savings isn't huge. To find out how much better off you'll be, you can play around with a mortgage refinance calculator.
- You don't mind a certain amount of hassle and stress. Refinancing your mortgage is a lot like getting a regular home loan; you have to fill out all kinds of paperwork, gather and submit bank statements, and endure a certain level of inconvenience along the way. The savings can be worth it, but you should know what you're getting into.
- You can afford a new loan with a shorter repayment timeline. Most of the time, home loans with a shorter repayment timeline come with lower fixed interest rates. A 15-year mortgage usually comes with a lower rate than a 30-year, for example. If you can afford a larger payment, you may be able to refinance your home with a shorter loan and score an even lower APR in the process.
You Should Stick with the Loan You Have If...
- Your interest rate is already relatively low. If the interest rate on your home loan is already relatively low, the savings you garner from a refinance may not be that great. And when you add in the costs of refinancing and the time you'll spend, your savings may not be worth it at all.
- Your credit isn't that great. If your credit score has gone downhill since you took out a mortgage, you may be better off sticking with the loan you have. Without good or excellent credit, it will be difficult to qualify for the best mortgage rates anyway. And if you can't get a good rate, what's the point?
- Your repayment timeline is relatively short. If your mortgage repayment timeline is relatively short, the hassle and expense that come with refinancing may actually set you back. Before you jump into a refinance, make sure the savings you secure will leave you better off than if you had focused on repaying your current loan as quickly as possible instead.
- You don't want to deal with the hassle of refinancing or pay any fees. If you hate the idea of enduring the mortgage process all over again, sticking with your current loan may be the best deal yet. By attacking the loan you have with fervor, you can pay your home off faster without the hassle of submitting a new mortgage application and all of the required paperwork.
- You don't want your monthly payment to change. While refinancing into new loan with a shorter term can help you pay down your home faster with a rigid timeline, your monthly payment may go up in the process. If you're happy with your current payment and don't want the added stress of a larger payment, you should think twice before you pull the trigger.
Should you refinance your home loan or stick with the one you have? At the end of the day, the choice rests firmly in your hands. Refinancing your home can definitely be worth it depending on your circumstances, but it's not always worth the hassle and expense. Only you can decide how much you're willing to put up with, what your time is worth, and whether a refinance is worth considering.