For some people, refinancing a home is a great move, an excellent way to save money long-term. However, refinancing for other people means coming up with significant money and then ending up with payments in the same ballpark. For this reason, any time you consider refinancing, you want to do your homework first to make sure it is a wise decision.
One of the considerations for refinancing would have to do with points. Typically, the less time you maintain a loan the more expensive points are. Therefore, if you plan to live in your home for a long time, it might be worth paying more points, which would mean locking into a lower interest rate. In addition, some lenders will actually finance points, rolling them into the overall mortgage loan. In this case, you would not have to come up with the money upfront, making closing more affordable.
Once you get through the process of deciding if a refinance is the smart move, you will then get to look at the various benefits it can provide. For one thing, refinancing is usually done to secure a lower interest rate. Some people have mortgage loans secured years ago when rates were high. This means they are paying more on the loan and more in the monthly payment. Therefore, refinancing to a lower interest rate would
save money on the loan while reducing the amount of monthly debt.
Refinancing could also be done to secure a shorter-term loan. If you have a 30-year mortgage, refinancing could offer you a chance to secure a 15-year mortgage, which means you would have the loan paid off in half the time. Another option for refinancing would be to take some of the equity built up in the home for debt consolidation, home improvement, or even sending a child to college.
As you can see, there are viable reasons for refinancing but keep in mind that just as you did with the original loan, you would still have closing costs. That means you are going through the same process again, paying for appraisals, inspections, settlement costs, attorney fees, and so on. The only difference is that you might be able to find a lender that would roll some of these fees into the actual loan but this is not always an
option. Therefore, while refinancing can offer many excellent benefits, you still need to be in a position to afford it.