Refinancing has been a term that you may have heard a lot of lately. As interest rates hit a near all-time low, many homeowners are seeking out lenders to try and get their home loan refinanced so that they can lock in a lower rate and start saving on their monthly mortgage bill. While there are many reasons as to why you may choose to refinance your home, there are a few things that may people often don’t realize when choosing to refinance that may end up costing them in the long run.
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#1 Closing Costs
Contrary to common belief, refinancing your home isn’t free. While many lenders will allow you to waive the appraisal, which is one of the most common out of pocket costs, don’t be fooled. While you may not be spending anything out of pocket this does not mean that refinancing your home is free or that there are no costs associated with the new loan. There are closing costs and lender fees that will be associated with your new loan, and while they are not generally paid upfront, they will be rolled into your new loan amount, and thus, be a part of your new payment amount.
#2 Length of the Loan
In most cases people purchase Real Estate with a 30-year mortgage, while there are 15-year terms they aren’t quite as common it today’s market. When refinancing a home, it is easy to see the monthly savings and skip over what that means for your loan terms. For example, if you’ve lived in your home for 10 years, and choose to refinance, you may end up refinancing for another 30-year term, which would set you “back” 10 years of payments which could potentially cause you hardship in the future, this is especially true for those who planned on paying off their home prior to retirement.
If you’re contemplating refinancing your home, it is important to look at all of the factors prior to starting the process. Ask yourself questions such as:
- How long will I be in the home?
- How long will it take to break even?
- Will This affect my Retirement?
- Do I “need” to refinance?
- Is the cost worth it?
- Do I plan to sell in the near future?
- Am I happy with this house long term?
- What is my current payoff balance?
There are many questions that you should ask yourself before moving forward with a refinance, and while the above questions are a great place to start, each loan is different as is each person’s situation, and thus you should ask yourself questions that are geared toward your specific situation, wants and needs.
If you’re currently searching for a new home, are ready to sell your home and are in need of a seller’s agent, or if you have any questions regarding Camano Island Real Estate, please feel free to contact our office at any time.