For most people, one of the biggest monthly expenses they need to pay for is housing. Because of this, many are also looking for any way that they can reduce these costs so they can have more money to spend on other things.
If you own your home, one great way to reduce your mortgage payments each month is to refinance. However, this isn’t necessarily the best option for everyone. So to help you determine if this will be a good path for you to go down, here are three things to consider before choosing to refinance your home loan.
How Long You Plan To Stay In This Home
The length of time that you’ll be living in your home after your future refinance will play a big role in whether or not refinancing is a good choice for you.
According to Sarah Davis, a contributor to Money Under 30, if you don’t plan on being in your home for at least a few more years, you might not break even after your refinance. Between the potential fees and other costs, it might take a while for you to see any value from refinancing. Because of this, you should be sure that you’ll be staying in your house for at least another few years prior to going through the trouble of refinancing, in general.
What Refinancing Will Cost You
Before you decide to refinance, you should also consider what it’s going to cost you financially to do so. Many companies offer different rates and promotions for refinancing home loans, so the costs can vary drastically.
To help you with this, Tri Nguyen, a contributor to Forbes.com, shares that you can generally expect to pay about three percent of your loan amount to refinance. In addition to this, there may also be third-party costs, taxes, settlements, appraisals, and more. So before you commit to this, make sure you know exactly what it’s going to be costing you.
If You Want A Cash-Out Refinance
Getting a lower monthly payment isn’t the only reason why someone might choose to refinance their home. For many people, getting a cash-out refinance could help to make their lives easier as well.
According to Libby Wells, a cash-out refinance allows you to take out your new loan for more than you need in order to get some cashback and spend it however you want. While this won’t allow you the maximum amount of savings for your refinance, it’s a way to get some cash if you need it and potentially save money over the life of your loan as well.
If you’re thinking about refinancing your home loan, consider using the tips mentioned above to help you make this decision.