Is Now the Right Time to Refinance for a Lower Mortgage Rate?
Consider these three things before you make your decision.
The decision to purchase a home is often life changing, making a mortgage a big part of one's financial plan and often the biggest piece of debt. And, similar to the stock market, the economic landscape for lending is continuously changing, making it imperative for consumers to review their mortgage regularly.
With interest rates remaining near historic lows, many are considering refinancing their home to lower monthly expenses, assist with a long-term payoff or consolidate debt—essentially to put themselves in a better financial position. Yet reasons to refinance are not limited to interest rates alone, and the "right" time to do it may vary for each consumer.
To hone in on key refinancing considerations, I chatted with Vince Giacalone, a mortgage banker with Residential Wholesale Mortgage (RWMI). Below is our collective list of motivators and considerations for refinancing:
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
What's Your Timeframe?
Before jumping into refinancing, determine your plan for the home: What is the estimated time you plan on owning the home? Is it two years? Is it 20 years? Determining that timeframe will help dictate the appropriate loan program for you and help you choose either a short-term or long-term hold strategy.
As Giacalone puts it, "friends don't let friends pay points." In other words, paying points to obtain a mortgage only benefits the consumer in specific, long-term scenarios. So, have a good understanding of your timeline before you refinance.
Know Your Motivators
What is your specific reason for refinancing? Is it to obtain the lowest possible rate, to protect the loan over the long haul or to improve your monthly cash flow? Or are you considering home improvements? It's important to determine the motivation prior to making the move. In a low-interest-rate environment, some consumers may see immediate monthly savings and opt to refinance for that reason. Others may use a cash-out refinance to build an addition to the house, consolidate their debt or invest the money elsewhere.
Interest Rates
Interest rates aren't the basis for a refinancing decision, but they can certainly play an important role. With current interest rates near historic lows, consumers may be taking a closer look at their statements and assessing where they stand. "Taking the mortgage temperature can either show consumers they are well positioned or serve as a wakeup call," says Giacalone. As each scenario is specific to the person, the refinancing decision should be made based on all aspects of the interest-rate environment.
Similar to the decision-making process involved in the original purchase, it's important to review one's reasons for refinancing and whether it's the right time. Personal situations vary, so be cognizant of your motivators and goals before refinancing your home.
Taylor Schulte, CFP® is founder and CEO of Define Financial, a San Diego-based fee-only firm. He is passionate about helping clients accumulate wealth and plan for retirement.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
Taylor Schulte, CFP®, is founder and CEO of Define Financial, a fee-only wealth management firm in San Diego. In addition, Schulte hosts The Stay Wealthy Retirement Podcast, teaching people how to reduce taxes, invest smarter, and make work optional. He has been recognized as a top 40 Under 40 adviser by InvestmentNews and one of the top 100 most influential advisers by Investopedia.
-
Earn Delta SkyMiles Worth Up to $1,800 with an AMEX Business Card
Delta SkyMiles and American Express offer 150,000 on business credit card for new cardholders.
By Ellen Kennedy Published
-
Stock Market Today: Markets Soar Amid Strong Earnings for Big Tech
Equities ended the week on an up note thanks to some of the market's biggest names.
By Dan Burrows Published
-
How to Get Your Kids to Step Off the Gravy Train
A surprising number of young adults live with their parents. Setting some financial ground rules could get the kids out on their own faster.
By Neale Godfrey, Financial Literacy Expert Published
-
Spring Is a Good Time to Clean Up Your Finances, Too
While you’re decluttering your home for spring, consider also taking a crack at cleaning up your finances and old paperwork.
By Tony Drake, CFP®, Investment Advisor Representative Published
-
Is Your Retirement Solution Hiding in Plain Sight?
Here’s how to use your home equity in combination with an annuity contract to produce late-in-life income.
By Jerry Golden, Investment Adviser Representative Published
-
Three Steps for Women to Take Control of Their Finances
These strategies are especially for women who are new to managing their money because of divorce or the death of a spouse.
By Emily Glassman Published
-
Can You 1031 Exchange into a REIT?
No, you can't, but two other REIT-like alternatives let you defer capital gains taxes while giving you exposure to institutional-quality real estate assets.
By Daniel Goodwin Published
-
Navigating the Finances of Fertility Choices and Adoption
Before embarking on the journey to parenthood, knowing what to expect financially for the different options is a good starting point.
By Julia Pham, CFP®, AIF®, CDFA® Published
-
Four Tips to Make Your Sales Presentation a Winner
Being prepared and not being boring can go a long way toward persuading a potential customer to buy into what you’re offering.
By H. Dennis Beaver, Esq. Published
-
Hot Tips for Home Buyers and Sellers Right Now
Real estate looks to be especially hopping this spring, thanks to pent-up demand and buyers adjusting to higher mortgage rates. Here’s how you can prepare.
By Pam Krueger Published