Because no two borrowers have the exact same circumstances, the set of pros and cons for refinancing an existing mortgage will be different for each. To answer the question whether or not refinancing is advantageous for your scenario, start by asking yourself these three questions.
Can you afford to pay the closing costs?
There are typically closing costs associated with a refinance mortgage, so if you do not have the money up front, refinancing is not highly recommended. While you can often roll the closing costs back into your loan, this could increase the amount of your monthly payments, canceling any savings.
How long do you plan to stay in the home?
You’ll want to know what your break-even period is – that is, how long it will take you to recoup those costs and begin to save money on your new mortgage. If you plan on leaving the house before that break-even period ends, it’s probably not worth refinancing.
Is switching terms worth it?
If you go from a long-term mortgage to a short-term mortgage, can you afford the increase in monthly payments? Going in the reverse direction, from a short-term to a long-term, you may have a smaller monthly payment, but take into account the interest you’ll pay over a 30-year mortgage could shrink some savings you are looking for.
Do you have a fragile credit score?
Refinancing could affect your credit score when you check rates with a lender as it is considered a hard inquiry on your credit. Each hard inquiry can decrease your credit score by a small amount. If you already have a vulnerable score, this hard inquiry could cause it to go down, so you want to seriously take into consideration the state of your credit.
After you’ve spent some time assessing your own financial and lifestyle situations, considering the answers to the above questions, and you feel refinancing may be right for you, Luxury Mortgage can help. Our mortgage loan originators can help you weigh your options of smart, innovative refi solutions. Use the buttons below to get in touch with us!
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