Access ID:
Pay Online Button

CD Rates

To refinance or not? Homeowners ponder this important question

Posted on Tuesday, March 24, 2015 at 11:15:32 AM

The historically low residential financing rates that have been present for much of 2015 have inspired some borrowers to refinance. According to the Mortgage Bankers Association, the refinance share of total mortgage activity reached 59 percent of all mortgage applications in the middle of March.

Given the prominence of refinancing, many current homeowners are asking if and when this step is a smart idea for them. It is important to remember that refinancing can help lock in a lower residential financing rate or different loan terms, but it does come with a price.

In order to refinance, homeowners will likely have to go through a process similar to what they faced when taking out their initial mortgage. This means paying many of the associated costs as well. If they can cover these fees, then that is a good first step toward knowing if refinancing is a smart idea or not.

After that, homeowner should consider why they want to refinance. It could be:

  • To switch from an adjustable rate to a fixed rate
  • To acquire a lower mortgage rate
  • To change loan terms
  • To use home equity for an expensive purchase

Homeowners who are considering refinancing should also think about their long-term plans. Do they want to move soon? Stay put? These answers can further help highlight the pros and cons of refinancing.

Most importantly, refinancing is a tool that should be used sparingly. It is not right for everyone and can't be done on a whim. Homeowners should use careful planning in order to determine if and when refinancing is right for them.

This includes:

  • Cost vs. benefit analysis
  • Financial planning
  • Budgeting
  • Long-term homeownership outlook

Thinking about these elements will help any homeowner decide what to do with their current residential financing.