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Over the holidays I enjoyed some time off with my family. This also meant I was able to do some deep thinking about my personal finances. One question comes up every year, “Is it time to refinance my mortgage?”
In my somewhat short adult life, depending on your perspective of course, I have asked myself this question many times. Over my total of ten years of home ownership (two different homes), I am considering my fourth home refinance (not including financing upon purchasing the homes!) I know, I am getting tired of this process but you can’t ignore when there is a great opportunity to be had in the form of lower interest rates!
Long-term interest rates and thus mortgage rates have continued their precipitous drop. The chart below shows just how low our current rates are historically, a new all-time low in fact!
Source: Ritholtz.com
*Federal Funds Rate used in chart above
But just because rates are super low, doesn’t mean a refi is right for you. I’ll share with you my list of pros and cons that I use to help me make my refinance decision*:
Pros in Refinancing
- Lower the term of the loan
- Lower the amount of my monthly payment
- Reduce the amount of interest paid over the life of the loan
- Paying off my principal more quickly which will benefit me even if I sell the home five years from now
Cons in Refinancing
- Hassel of finding someone reputable to work with
- Seeking out competitive pricing for upfront costs as well as the long-term rates
- Taking time to sign the reams of paperwork required to refinance
*Please keep in mind that this list is specific to my situation. Each individual's situation will vary. Please consult the appropriate professional before making a decision.
In my case the pros far outweigh the cons of refinancing. So if you plan to stay in the home at least as long as it will take you to recoup the cost of refinancing (generally around 2 years) and prevailing rates are at least 1% lower than what you are currently paying it is worth a look. Analyzing the amount of money I can save over the next 5-15 years was enough to inspire me to pick up the phone and get started. I encourage you to get inspired as well if it has been a few years since your last refinance! Take the first step and consult with a professional to determine if refinancing is the appropriate next step for you.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making a decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.