Refinancing a mortgage is a significant move that can lead to significant savings. But the strategy may also backfire, leaving you in a worse position than you were in before–and with less cash in the bank. So how do you know whether you should refinance your Salt Lake City home?
The brief answer is that refinancing makes sense if you will wind up saving money and not cause any new problems. But there are more concerns at stake, too, including risk management in addition to your other financial objectives.
Save Money
You could save a whole lot of cash with a refinance, and that is generally the best reason to get one. Specifically, it may help you spend less in interest over the life of your loan.
To ascertain whether you’ll spend less, you will want to run the numbers. It’s not especially tough to calculate the potential savings.
Reduce Your Payments
Occasionally refinancing can net you a lower monthly payment. If you are having cash flow problems, a lower monthly mortgage bill for your Salt Lake City home can seem very attractive. A lower rate of interest or a longer duration could drop your monthly payment by hundreds of dollars.
While it could be great to pay less every month, be sure to look at the big picture. If lower monthly payments are offset by increased interest expenses, you are not coming out ahead.
Lower Your Risk
Sometimes, refinancing may be a great idea even if you don’t get a lower rate or a shorter-term loan. Getting out of an ARM is 1 example. If you are worried about a significant interest rate increase in the long run, refinancing with an ARM to a fixed-rate mortgage reduces that risk. Even though your monthly payment may increase, you know the speed never will.
Cash Out Your Equity
Some Salt Lake City homeowners refinance to cash out the equity in their homes to pay for education, home improvements, or a new company. Although those are commendable applications, a cash-out refinance could be insecure if your new business fails, your home improvements do not increase the value of your Salt Lake City home, or in the event you can not keep up with tuition payments. In each of these scenarios, you have put your house on the line; make sure that you can keep up with your new payment plan.
Consolidate or Alter Your Debts
You may also take money out to combine high-interest-rate debts. In case you’ve got a solid plan to get rid of poisonous debts, this strategy could work, especially since home loan rates are generally much lower than credit card interest rates.8 But if the strategy fails, remember that you may face the danger of losing your home in foreclosure or having your automobile repossessed.
Eliminate a Borrower In the Loan
If you are going through a divorce or have purchased a house with a relative or friend, you might want to change who is legally accountable for paying the mortgage. Refinancing your mortgage is an opportune time to change what borrowers are recorded on the loan. Take note that the title or deed to the home does not automatically change if the mortgage does, so you might have to remove a title from that document as well. Make sure the closing costs and other various expenses are worth the title change.
What to Watch Out For
If you are thinking it’s time to refinance your Salt Lake City home, investigate the following:
Closing Costs
Prepayment Penalties
Personal Mortgage Insurance
Evaluate whether your reasons for refinancing may outweigh the probable costs. In that case, you can conduct a simple breakeven analysis to determine precisely what loan terms you will need to find to create the new mortgage worthwhile.
Graystone Mortgages helps homeowners refinance in Salt Lake City. To learn if you are eligible for refinancing, contact them today.
