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Mortgage Refinance: Is it Right For You?

By Liz Miller

Real Estate Agent with Coldwell Banker Residential Brokerage SA552583000

October 23, 2019 01:42 PM

For several months now, mortgage rates have remained under 4%. If you purchased your Lake Havasu home last year, you may have paid close to 5%. Your home also may have shot up in value, giving you more equity. With interest rates staying low, you might want to consider refinancing your mortgage. But how do you know if mortgage refinance is right for you? Consider the following before making a decision.

Mortgage Refinance

Why Should You Refinance?

Refinancing with a lower rate lowers your monthly payment. If you built up some equity, you might even be able to tap into that to consolidate debt. This helps when you accumulate debt with high-interest loans and credit cards. Let's say you have three credit cards at 12%, a student loan at 6%, and a car loan at 10%. You pay 4.5% on your mortgage loan. As long as you have decent credit, you might be able to combine all of these debts with your home loan into one monthly payment with an interest rate below 4%. That could amount to thousands of dollars saved over the life of the loan.

Another reason you might want to refinance is to change the terms of your loan. A 30-year fixed-rate loan got you into your Lake Havasu home for less. But, a year or two in, your financial picture changed. Now, you can afford to pay a bit more towards your mortgage each month. Changing from a 30-year to a 15-year loan cuts down on the amount of time it takes to pay off your mortgage. But it also severely cuts the amount of interest you end up paying.

Will Refinancing Affect Your Credit Score?

Credit scores are no joke. They help determine the interest rate you pay. So knowing how a mortgage refinance affects your credit score is important. To determine your creditworthiness, a bank performs a hard inquiry on your credit. This may lower your score by a few points. However, that is temporary. When you sit solidly above the minimum score required for banks to approve you, that might not make a difference. But, if you sit near the border of "OK" and "denied", a couple of hard inquiries could put you below the minimum requirement. Also, closing an account in good standing, even when paying off your old mortgage, might negatively impact your credit. The old, long-term account goes away while the refinanced mortgage appears as a new loan. Talk to your lender to find out how refinancing may affect your score before you decide whether it's right for you.

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