There's no denying we are living in very strange times. There hasn't been a situation like the current COVID-19 virus since the Spanish Flu 100 years ago. In order to help with financing interest rates have seen a steady decline over the last several months. This includes interest rates on new loans and mortgages.
Depending on when you purchased your home there is a very good chance the new rates are significantly lower than what you currently have. This may make it financially beneficial for you to refinance your home during the current COVID-19 pandemic. But is this 100% always the case? Here is what you need to know about refinancing your home, either now or in the future.
Understand The Up Front Expenses
You won't spend any money initially as you find out how much a new mortgage rate would be following a refinance. If you purchased your home several years ago the interest rate might be several points lower. This can very well save you a couple hundred dollars a month, depending on your mortgage amount. However, if you decide to continue forward and take advantage of the refinance there are several fees associated with it.
In general, you can expect to pay anywhere from two percent to six percent of your mortgage amount during the refinance process. This does depend on your credit score, available home equity, your lender, loan size, plus your mortgage term and type.
There are a handful of fees associated with a refinance. These fees will differ, but there is typically:
- an application fee (which can range from under $100 to around $500)
- credit report fee
- a home appraisal and home inspection (together these can cost a few hundred dollars to nearly a thousand)
- plus flood certification fees
- title search and insurance fees
- recording fee
- reconveyance fee
- and an origination fee, which might cost up to 1.5 percent of your loan.
Is It Worth It?
As you can see, you'll likely end up paying a few thousand dollars (potentially) to refinance your home. Is it worth it? Well, that depends on you, your current situation, and what you see yourself doing within the next five to 10 years.
First, do you have the available funds to pay for the refinance? Your lender may allow you to ball the expenses into your mortgage so you'll have the fees paid off in a few months or a few years. If you do that you won't be able to refinance again or do any adjusting to your mortgage until these fees are paid off. But beyond this, where do you see yourself in a few years?
You will begin to truly realize the benefits of refinancing a mortgage several years down the line after you've paid off the fees. If you plan on moving in a few years refinancing your mortgage won't make much sense. However, if you're planning on staying for longer, it is well worth refinancing your mortgage.
Refinancing Your Home May Be Right For You
Ultimately, refinancing may be the right decision for you. You just need to talk with your lender and go over what the current interest rate is compared to what you're currently paying. Even if you decide not to refinance your home mortgage it won't hurt to look into it and to see what kind of money, if any, you'd save on a monthly basis.
Who knows, you may discover you're able to save thousands of dollars every year by refinancing your home. This is money you can put back into your pocket, set aside for different bills, or use as you see fit.