Tuesday, January 29, 2013

Should You Refinance Your Home?

For some homeowners, now is a great time to refinance before interest rates get closer to their pre-recession levels. They are already starting to grow up as unemployment drops and the housing market grows stronger. Depending on the specifics of the housing market in your area, your financial situation, and what kind of homeowner you are, refinancing could be a smart move and make your home more affordable.

Not everyone can refinance. You need to have to right level of equity, something many home owners don't have thanks to fallen home prices. For those whose homes still have enough value, refinancing is a way to redistribute the debt. While the value of your home is what it is and can't be changed by refinancing, you can get a lower interest rate or change the timeline of the loan. For example, if you originally bought your home thinking you might move in a few years but have decided to settle down for the long term, you might get locked in at the new, lower current rate AND change from a shorter-term adjustable rate mortgage to a longer term 40 year mortgage.

In a way, refinancing is a bit like purchasing your home again. You will even have a closing, complete with closing costs, just as you did at the original purchase. Also like when you first bought the home, you will need to shop around for the best lender. That may or may not be your current lender. It never hurt to make a few calls to ensure you are getting the very best deal. Don't limit yourself to banks-- mortgage brokers are often a great option with competitive rates.

Because refinancing comes with closing costs and changes the timeline of your loan, it's not necessarily the best option for those who want to move in a few years, or for those who can get only a minimal improvement in interest rates. Refinancing is an investment in making your long-term debt more manageable, not a quick fix for those who bought too expensive a home, whose taxes have gone up, or who have seen the value plummet. It IS a great choice for those who seem themselves in their house long term, or who want to adjust their big financial picture to make future purchases, such as a second home or commercial property.

To take a first glance at whether refinancing is right for you, check out Smart Money's Refinancing Calculator. Also talk with a trusted realtor or financial professional to get the latest on your area housing market and economic outlook.