In our last post, we talked about how to take advantage of low mortgage rates through refinancing. Refinancing at the right time can save you a hefty amount of money over time, so it’s absolutely worth looking into when the rates are low, like they are currently.
But refinancing doesn’t always pay off. In fact, over time it can end up costing you more. Navigating the “should you, shouldn’t you” part can be tricky, so here are some times when refinancing might not be a good move for you:
You Want to Change your Loan
If you’ve got a 30-year loan on your home but you’re looking to pay it off faster, you may consider refinancing to a 15-year loan. It sounds like a great idea, but before you refinance, consider keeping your loan. You can chip in more to your monthly payments on a 30-year loan, pay off your loan faster and still keep more flexibility in your monthly payments. Just make sure you weigh all the options before changing your loan type.
The same goes for looking into an adjustable-rate mortgage (ARM.) An ARM can be an attractive option because the upfront rates tend to be low for a period of time. The problem comes up when that period of time is over and the rates jump up to a new level, possibly higher than with a fixed-rate mortgage.
You Want to Save Money in a Hurry
Yes, taking advantage of lower mortgage rates can certainly save money in the long term. But if you’re looking for a quick fix, be aware that refinancing takes savings upfront. You are still going to have the fees associated with getting a mortgage, like closing costs, so be prepared to shell out a few thousand for that. Don’t forget that refinancing can also add years to your loan, so calculate both long and short term costs before committing to refinancing.
This isn’t the Right Time to Refinance
Timing can be everything when it comes to refinancing, and there are definitely right and wrong times to start that process. If your home has dropped in value over time, refinancing could end up losing you money, so be wary of that. You could end up having to pay private mortgage insurance.
Life changes can also take a toll on your refinancing possibilities. Take your credit, for example. If anything has caused your credit score to drop recently, you may not be able to get the great rate you’re hoping for. Your career can also stall refinancing. You need to have a couple years’ worth of evidence of your income and employment history, so if you’ve just started a new job, it might not be the right time to refinance.
You’re Planning to Move
If moving is on the horizon, refinancing probably isn’t for you. And that doesn’t just mean you’re moving next year; if finding a new house is in your five-year plan, refinancing might be a money pit. Even if you manage to score a lower rate through refinancing, moving too soon afterward won’t help you take advantage of the savings rate you’re trying to get. On top of that, you will still need to pay closing costs on refinancing, plus whatever loan you need to get for your future home.