When It Doesn’t Make Sense to Refinance Your House

    Even though mortgage rates have started to creep up in the past few months, they’re still at an all-time low. According to bankrate.com, the average 30-year fixed rate is still under 4.5% and the average 15-year fixed is under 3.5%. So you, along with everyone else you know, should refinance, right? But experts warn that just because “everyone is doing it,” doesn’t mean that refinancing makes sense for you and your personal financial situation. Here are some situations where refinancing might be a bad idea:

    – If you are planning to move soon or have a job that tends to move you around often, you may want to stay with your current rate. You’ll waste a lot of time on paperwork and the closing costs you’ll pay (for things like loan origination and application fees and the home appraisal) will cost you more total money than you’ll save each month. Many financial websites have calculators where you can calculate your “break even point,” meaning how long you’ll need to stay in your home in order for your savings each month to equal the amount of money you’ll pay in closing costs.

    – If you’re interested in refinancing to an adjustable rate mortgage (ARM), you’ll want to reconsider your plans. Adjustable rate mortgages typically offer lower rates than fixed rate mortgages but in 5 or 10 years (depending on the terms of the loan), the rate will “adjust” to the current rate. Experts agree that we’ve probably seen the lowest rates will ever be, meaning that in 5 or 10 years, you could end up with a much higher increase in your mortgage rate, resulting in a large increase in your monthly payments. On the other hand, if you currently still have an ARM mortgage, now IS great time to refinance to a fixed rate.

    – If you will be re-setting the clock on your mortgage, you may want to pass on refinancing. For example, if you currently have a 30-year mortgage, but you’ll be paying off your loan in 20 years, it probably doesn’t make sense for you to refinance to a 30-year mortgage as you’ll end up paying much more in interest over the term of your loan. So if you currently have a 30-year mortgage, you instead may only want to consider 15-year loans.

    So while refinancing may work for a lot of people, just remember it’s not a one-size-fits-all kind of decision! Be sure to talk through all of your refinancing options with a qualified mortgage expert so you know what the best option for your situation is.

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