A home refinance is simply switching your home’s mortgage for a new mortgage. This is done to achieve a better interest rate and subsequently lower monthly debt obligations. However, a home refinance may not be the right option in certain scenarios. This review discusses whether or not you should refinance your home in 2021.
The purpose of refinancing your home
The purpose of refinancing your home is to lower the monthly payment, reduce the amount you owe on your home in total or change the amount of time it takes to pay for your home. However, refinancing your home may be more trouble than it is worth if you intend to leave in the near future. This is largely due to closing costs, which may outweigh the amount you save with your new mortgage agreement.
The benefits of refinancing in 2021
The most notable benefit of refinancing your home is to lower your interest rate. This is particularly true in 2021 since the interest rates are currently far lower than they typically are. At the end of 2020, the average mortgage rate was around 3.85 percent. This number dropped dramatically by January 2021, and the average mortgage rate is now below 3 percent. When refinancing your home, you can take on a lower interest rate, which can save you money long-term.
When refinancing your home is the best option
There are three main considerations you should make when determining if refinancing your home is right for you:
- The monthly savings (after tax)
- Your long-term plans
- The closing costs
A simple cost analysis should help you determine if refinancing your home is appropriate. If your long-term savings by lowering your monthly payments outweigh the closing costs, then a home refinance is the right option. However, if you intend to leave your home in the near future, then a home refinance may not be appropriate as it could cost you more than you are willing to spend at closing.
Tips for refinancing your home in 2021
When refinancing your home, it is important to consider all of the closing costs that may be involved. This is, of course, different for every refinance. Common costs the lender may require include but are not limited to:
- Appraisal fees
- Title services
- Home inspection
As it pertains to 2021 in particular, it is important to consider the health risks involved as well, particularly if a virtual home closing on your new mortgage is not an option. When shopping for a lender, be sure to compare multiple options to find the best possible interest rate for your new mortgage. To make the process as easy and most financially beneficial long-term, consider working with an experienced real estate agent.
The bottom line
A home refinance is a great way to secure a better interest rate and lower monthly payments on your home. 2021 presents unique challenges, but refinancing your home in the new year can prove to be financially rewarding long-term.
EXIT Realty Bob Lamb & Associates is Murfreesboro’s most innovative real estate team.
EXIT Realty Bob Lamb & Associates
2630 Memorial Blvd, Murfreesboro, TN 37129