Is Refinancing Right For Us?
How to Decide If Refinancing Is Right for You
During your tenure as a homeowner, you’ve probably asked yourself the following question at least once: “Could I save money by refinancing my home?” Often, the answer is yes. But refinancing can be a bit of a complex algorithm: determining the value of the process is wholly dependent on what factors you put in to the refinancing equation. In competitive real estate markets, including Portland’s, today’s homebuyers are presented with lower, more lucrative interest rates. And when mortgage rates fall, refinancing options become an attractive way to lower your monthly home payment. But before you begin this process, it’s wise to ask what it means to refinance your home. This begins with questions like, how will you be impacted by short-term benefits and long-term savings? How do you approach refinancing? What resources and counsel are available? Here are a few answers to get you started along the path to determining whether it’s the right time to refinance your home.
Important First Steps of Refinancing a Home
To understand whether or not refinancing is right for you, start by understanding your goals. Joel Morgan, a branch manager with Options Financial, shares “that refinancing can often make sense for many people if they have a clear goal and strategy.” What do you hope to achieve by refinancing your home? It’s important to consider if you want lower payments, a shorter term on your mortgage, cash for home improvement projects, etc. Secondly, don’t go it alone. It’s okay not to have the expertise behind loan consolidation, refinancing benefits, interest costs – that’s what experts are there for. If you’re considering refinancing, reach out to a financial specialist, a Realtor, or a loan officer here at Options Financial – we’re all here to help you understand refinancing options, and to secure the loan that fits your needs.
Pros and Cons of Choosing to Refinance
Portland realtor Rachel Freed, Principal Broker and Co-Founder of Urban Nest Realty, shares that “there are times when refinancing makes sense for a homeowner. It's exciting to buy a new house, but if you like where you are and want to stay put, you might consider refinancing your current mortgage to see if you can get a better rate and lower your monthly payments.” From this vantage point, if you are committed to your current home, there are definitely perks involved with refinancing.
Refinancing May Offer Opportunities For:
- Home Improvement: For owners looking to improve the value of their homes, a Home Equity Line of Credit (HELOC) or rehab loan supplies cash home improvement projects that can add tremendous value to your home over time.
- Financial Savings: If you’re interested in immediate benefits, realtor Daniel Blachowski (also with Urban Nest Realty) notes that some refinancing offers allow homeowners to get a lower interest rate, which means lowering one’s payments (although this usually extends the life of the loan). For those invested in long-term savings, some other options include refinancing to a shorter-term loan (i.e. converting a 30-year loan into a 15-year loan) to pay off the loan sooner.
- Investment: If you’ve just gotten money out of a home loan, it’s unlikely that your instinct will tell you to send that money back into real estate. However, if you opt for a cash-out loan, this type of refinancing can provide money for a down payment on a new house or investment property without forcing you to sell your home first.
Sounds great, huh? Well, let’s not neglect the cons. While refinancing does offer some attractive benefits, there are always costs involved with a loan (either out of pocket, rolled into the cost of the loan, or rolled into the rate vs. getting a lower rate). Additionally, appraisals can be tricky and costly for homeowners who are unfamiliar with the process. That’s why it’s important to seek counsel throughout the process of deciding whether or not refinancing is right for you.
To Refinance, or Not to Refinance?
Joel Morgan also claims that “refinancing can both cost you money and save you money — the biggest consideration to understand for each individual is why would they benefit from a refinance.” So if you’re considering refinancing, what’s your “why?” If you’re confident that refinancing will allow you to save money, add value through home improvements, or provide investment opportunities, refinancing could be right for you. To understand whether or not refinancing is right for you, Morgan suggests meeting with a financial advisor to address individual factors that will impact the value of your new loan. Potential factors include:
- Both short-term and long-term plans for your home
- Remaining time and costs associated with your current loan
- Total monthly savings
- Debt consolidation
- Equity transfer to new home and keeping current home as investment property
- Simply 'needing' to lower expenses due to changes in household income
- Access equity for home improvements
Moving Forward With Refinancing
Refinancing bears a long-term impact on your total loan. But for those who choose to refinance, there’s a variety of options to help you achieve your refinancing goals. For more information on how refinancing could fit with your life and financial plans, use the Options Financial Refinance Calculator to learn more!