Some of our clients get a letter weekly from the banks that hold their mortgage with pretty great offers to refinance those mortgages to a lower rate. The question isn’t whether you’re getting a good deal but should you do it. Let’s take a better look at all of this.
If you’re relatively early into owning your home, within the first five years,and you started out with a percentage rate higher than 8%, it could work well for you to take a look at it. In some cases you could lower your monthly payments by as much as $900 a month depending on how high your starting rate was while getting a little bit of extra money to spend on a few other things. Of course, the smart thing would be to take that money and put it back towards the principle of your home to help you pay it off sooner but you’d have a lot of options to think about.
If you’re in the last 5 years or so towards paying off your mortgage, the deal might not be as smart a move depending on your long term goals for the house. If you’re looking to stay in the house for the rest of your life, don’t want to have any payments and want to will it to family members, then it’s best not to refinance and have to start all over.
If you’re looking to stay in the house and can continue making payments well into your old age and don’t have anyone you want to will your home to, refinancing this late not only reduces your monthly payments but could give you a nice windfall to use towards renovations. Also, if something happened to you and you had to go into a nursing home, your house might sell quicker, helping you spend down your out of pocket expenses so you can get on Medicaid quicker. That sounds a bit morbid but it’s a consideration to think of.
The decision is tougher when you’re in the intermediate range of 10 to 20 years into your payments. If you’re relatively young it’s not a bad way to go if you can save a lot on monthly payments, possibly making some double payments along the way if you have some extra money here and there. If you have some high outstanding bills and are ready to budget your payments but need a cash boost, then refinancing could help you get out of a jam and give you a shot to start over without having to think about bankruptcy.
Your accountant is a good place to start to ask questions regarding the possibility of refinancing. They could help you with the budgeting process to see if refinancing is a viable way for you to lower payments, pay off bills or make home improvements. It’s better to start with them because they don’t have a vested interest in what you do like the bank’s mortgage professionals will.