Lower interest rates this spring have many people thinking about buying a new home – or refinancing their current mortgage. When rates dropped at the end of March, many people rushed to refinance while rates were so low. But before you hurry to refinance, stop to consider the pros and cons.
In addition to current interest rates, borrowers looking to refinance should consider external costs as well as the amount of time they plan to stay in their current home.
Watch the current interest rates
Refinancing is worth considering when the new interest rate is at least a half point lower than the price you are currently paying. As we have seen this spring, rates can change quickly. Think about the savings at the new, lower rate, as well as costs associated with taking out the new loan.
Keep in mind additional costs
Lenders charge for a variety of fees and services relating to a new mortgage, including:
- Appraisal fees
- Loan origination
- Notary fees
- Credit reports
- Title policies
- Escrow fees
- Application and administrative fees
All these costs mean that, even with your new interest rate, it may take several years to break even on refinancing. If you only plan to remain in your current home for another year, refinancing may not be worth your while.
Consult with a professional
Not only is a home a huge investment but refinancing at the wrong time can leave you with more costs than you bargained for. It helps to have a real estate professional review your mortgage to help you determine the best strategy.