Here are some of the factors you may want to consider in deciding whether or not refinance your home loan.
Your Current Mortgage Rate
Your current mortgage interest can be a major factor in deciding
about refinancing. If your current rate is like 7%, 8% or more
then you are likely to save a considerable amount after
refinancing your mortgage loan. With the mortgage rates at their
historically low value, you should be able to find a much better
rate. Calculate the difference between the two rates to see how
much savings you are going to achieve by refinancing.
Refinancing Closing Costs
Find out all the
closing costs involved in refinancing your mortgage. Compare it
to the savings you are make to make the decision. For example, if
you are left with only couple of years of payments then the
closing cost itself might exceed the savings in the two years. If
your mortgage loan is relatively new then the savings are likely
to exceed the refinancing costs.
Tax Relief
Consider the tax
relief you are getting now for the interest paid for your current
mortgage. After refinancing the tax break is likely to be less
because of lower mortgage interest rates. Calculate the likely
difference and take it into account while making your decision.
Long Term / Short Term
If you are planning
to stay in the house only for a few years then you should compare
the closing costs with the savings made in these years. For
example if you are planning to move out in couple of years, then
the savings after refinancing may not match with the closing
costs paid for the refinanced loan. Whereas if you are likely to
stay in the house for long term, then the saving is likely to be
much more than the closing costs.
Cash Out
If you are planning
to stay in the house only for a few years then you should compare
the closing costs with the savings made in these years. For
example if you are planning to move out in couple of years, then
the savings after refinancing may not match with the closing
costs paid for the refinanced loan. Whereas if you are likely to
stay in the house for long term, then the saving is likely to be
much more than the closing costs.
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