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When You Should (Not) Refinance

Refinancing is common practice for homeowners, and it’s often a smart financial move.

It can lower your payment, reduce your interest rate and more. But when it’s not the right time to refinance, it can be an unnecessary effort or even result in extra costs.

When should you think about refinancing, and when should you think twice? Here’s a quick guide to help answer these common questions:

What are the perks of refinancing?

  • It can change your payments and interest rate. If your credit score has improved significantly, for example, refinancing could result in lower costs.
  • Refinancing can also allow you to get a shorter/longer loan term than your previous mortgage or switch from a variable-rate to a fixed-rate loan according to your financial needs.
  • Cash-out refinancing can give you immediate access to funds for home improvements or large purchases.

When should I think twice?

  • If you plan on moving in the next few years. Refinancing involves closing costs (typically 3-6% of the loan amount), so you’ll want to stay long enough to make them worth it.
  • If the cost outweighs what you’d save. Even if saving money isn’t your primary goal, minor advantages may not be worth the cost of refinancing in some cases.
  • If you’re close to paying off your first mortgage. This is especially true if you refinanced a 30-year loan and got another 30-year loan, for example.

How can I prepare to refinance my mortgage?

  • Review your options and current rates. Compare their pros and cons with your current mortgage.
  • Calculate closing costs. For example, you should subtract closing costs from any savings from lower monthly payments to determine the actual amount you could save throughout the loan’s duration.
  • Check whether you can improve your finances to get better loan offers (e.g., increasing your credit score).

Have any questions about refinancing your mortgage? Get in touch today.

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