When Does It Make Sense To Refinance?
With mortgage refinancing, timing is everything. In many cases, your home’s current value and the local real estate market’s overall condition will play huge roles in determining whether refinancing makes sense.
Our Irvine refinancing Attorney/Realtor considers many factors when assessing a new mortgage, including:
- Equity in the home. If your current property value greatly exceeds the value of your mortgage, you may be in a good position to pursue refinancing. Some of this equity may be able to be “cashed out” in cash-out refinancing.
- Interest rates. If current interest rates are lower than the interest rate on your mortgage, refinancing can help you save a significant amount in the long term.
- Current loan balance. Your progress in paying off your mortgage principal will play a role in whether refinancing makes sense. If you are multiple years into a 30-year mortgage, it may be sensible to pursue a shorter mortgage term as part of your new loan agreement. Otherwise, the amortization period will likely be reset, and added interest costs can negate other benefits of refinancing.
- Presence of advantageous or disadvantageous elements. If your current mortgage has an adjustable rate, switching to a fixed rate can be extremely advantageous. However, if your current agreement includes interest-only or negative amortization loans, you will likely be unable to maintain those payment-lowering benefits in a new agreement.
- Costs of refinancing. Completing a refinancing transaction has all of the expenses associated with closing an initial mortgage agreement. These costs must be taken into account when weighing the overall potential benefits of refinancing.
Generally, it can be worth considering refinancing if you have substantial equity in your home and current interest rates are lower than that of your existing mortgage agreement. If current interest rates exceed the rate that you are presently locked into, refinancing will likely not save you money.
Declining real estate values can also make refinancing untenable. If you lack equity in your home, refinancing will probably not be possible. Homeowners that are currently in default will also face tremendous difficulties should they attempt to refinance.
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