Interest rates are still low. But nearly everyone agrees that the interest rates will begin to rise. The Federal Reserve has already raised the rates once in 2017, and has said the rates will continue to rise.
So should you take action before the interest rates rise? Should you refinance and get better terms than you currently have? Should you refinance to pay off short term debt? Or possibly take out some cash and reinvest the funds somewhere else? Here are a few questions that you should ask yourself before you do so.
How long will you remain in your home?
The typical answer is that if you do not plan to remain for at least three years, you probably should not refinance. The costs of the refinance may not be recovered in only three years.
Why are you Refinancing?
Are you planning on paying down high interest, short term debt such as credit cards? This can be risky. You will be adding long term debt or reducing your equity. And once you pay down the credit cards, it is too easy to load them up again.
What is your current mortgage like?
Can you get a significantly lower rate, or do you have a balloon mortgage?
If you have a balloon mortgage, and the balance will be due soon, it may be better to refinance now and lock into a lower fixed rate mortgage, rather than hope the rates will be this low when the balloon payment comes due. If you can simply get a lower rate, and if the savings will pay the refinancing expenses with three years, strongly consider doing so. Here’s a hint – you don’t need to take a new 30 year mortgage. If your current mortgage has 22 years left, consider taking a 22 year mortgage.
Do you want to reinvest the money?
A cash out mortgage is a cheap and easy way to borrow. Maybe you want to refinance your home, then rent it out while you move to a new home. Or maybe remodel your home to keep the value high while enjoying the new features in your home. Or possibly you want to reinvest the money in a more traditional investment, such as stocks. Beware, you will be playing the market with your home’s value.
Questions? Need to speak with a good mortgage rep? Call me for a referral, Art Reiman – Realtor, at 732-598-7700