Is Refinancing Your Home Right for You?

As interest rates have reached historic lows, you may be considering refinancing your home. But should you? Several factors need to be considered before you begin the refinancing process. Whether you are purchasing your next residence or buying a vacation home, Luna Lending will look out for your best interests and help you with this decision.

Here are some things to contemplate when you go to refinance your home:

How Old is Your Current Mortgage?

If you are already well into your current mortgage, it may not make sense to refinance and add years of additional payments. You will end up paying more in terms of interest if you refinance your existing mortgage.

How Long Are You Staying?

If you don’t plan on living at your home for much longer, it might not be a good idea to refinance because recovering the costs of the refinancing process takes time. Fees and associated costs tacked onto the mortgage can last for months, if not years, into the loan. If you are going to sell your existing home before breaking even with the refinancing fees, you may want to reconsider.

Are you Underwater?

A mortgage is considered “underwater” when the loan has a higher principal than the home’s market value. This can occur when property values fall either in a region or in the entire housing market. When you are underwater on your loan, you may not have any equity, which will adversely affect your ability to get credit.

What’s Your Credit Score?

You should be mindful of your credit score before applying for a new mortgage, as it can ultimately determine the interest rates for any new loan you are applying for. A 100-point difference in a credit score could result in thousands of dollars either saved or lost. If you believe your credit score is currently low, it may be best to work on improving your score before attempting to refinance your home.

At the end of the day, there is no rule of thumb that you need to lower your rate by a certain percentage for refinancing to be beneficial to you. After all, every homeowner has different finances and goals. A 1% reduction may not be beneficial in some cases, whereas a 0.25% change in rate can be beneficial in others. Depending on your unique circumstances, the need to refinance your home may outweigh the negatives associated with it. If you need a lower interest rate or lower monthly payments, refinancing your home might be the right answer for you.

Want to test your refinancing knowledge? Take our quiz to see how you stack up!

With over 15 years of experience, Luna Lending has the knowledge and resources to help you close your loan. Whether you are refinancing an existing home or looking to buy a new house in the Lake Tahoe area, Luna Lending is here to help. For more information, feel free to contact us today!

AHL is an Equal Housing Opportunity Broker.

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