Your mortgage loan may very well be your largest financial obligation, so reducing the monthly payment is undoubtedly appealing. While home refinancing may seem like a good idea, though, it’s important to evaluate the impact of doing so from all angles. There are both short- and long-term consequences of refinancing, and depending on the circumstances, it could cost or save you money. For this reason, it’s wise to discuss your particular situation with a seasoned loan officer. In the meantime, here are some general guidelines to keep in mind. 

When Refinancing Is Wise

Generally speaking, refinancing a home loan is a strategic financial move if doing so will allow you to reduce your interest rate by at least 2%. While some homeowners are inclined to refinance if they’ll save just 1% on interest, it’s important to remember that there are closing costs to consider. These fees, which can be as high as 6% of the principal, will cancel out any savings if you don’t retain ownership of the property for long enough to earn them back. 

How Refinancing Can Help 

There are two major benefits of securing a lower interest rate by refinancing your mortgage loan. The first is reducing your monthly payments. This could add considerable flexibility to your household budget. The second is building more equity in your home faster. When less of each payment is going toward interest, more is paying down the principal. Refinancing could also reduce the life of the mortgage. If you manage to secure a significantly lower interest rate, for example, you could transfer from a 30-year plan to a 15-year plan with a negligible difference in your monthly financial obligations. 

When Refinancing Will Not Help 

Even if interest rates have decreased, refinancing your mortgage loan won’t help if your credit is worse now than it was when you applied for the initial mortgage. Likewise, if you have an adjustable-rate mortgage, there may be no need to refinance when rates drop because your payment will automatically decrease. Finally, refinancing is unwise if you’ll only secure a slight drop in the interest rate. 

If you’re thinking about refinancing your mortgage loan, Deuane Woodard—a loanDepot® loan consultant—will be happy to examine all your options. Based in North Richland Hills, TX, and serving borrowers throughout the Dallas-Fort Worth area, this knowledgeable loan officer can explain the current state of the market in terms you’ll understand. With more than three decades of experience in the financial field, he helps clients navigate even the most complicated financial transactions. To get started, visit his website or call (817) 875-6043.