Is Home Loan Refinance Right for You

There is no question that home loan refinance can save you a lot of money in the long-run. However, home loan refinance requires a substantial investment of time and resources on your part, so you want to be sure it's right for you before you proceed. Here are some questions to ask yourself before you decide to home loan refinance.

1. Are interest rates on the rise? If you have an adjustable-rate mortgage (ARM) and interest rates are rising, you might consider home loan refinance to switch to a fixed-rate mortgage. This will enable you to lock in a stable rate for the life of the loan.
2. Are you struggling to make your monthly mortgage payment? Is your mortgage payment putting too much of a strain on your budget? A good rule of thumb is that if housing costs account for more than 28%-30% of your income, you might be overextended. If that is the case, taking advantage of home loan refinance can lower your monthly payments by reducing interest rates or extending your repayment term.
3. Is your adjustable-rate mortgage too stressful for you? Having to face regular fluctuations in your mortgage payments and interest rates can indeed be stressful, especially if you are on a tight budget. If your ARM is causing you too much stress, you can use home loan refinance to switch to a fixed-rate mortgage or to another ARM with more reasonable rate caps.
4. Have you improved your credit? If your credit has improved since you took out your existing mortgage, you stand to save quite a bit of money by using home loan refinance. Your credit score is a huge factor in determining the terms and rates you get on mortgage loans, so you might be eligible for a more favorable loan now.
5. Is your income higher? Though home loan refinance can considerably lower your monthly payment, it can also be used to shorten your mortgage to help you pay it off faster with fewer interest expenses. In other words, if you can now afford a larger monthly payment than you could before, consider home loan refinance to switch to a 15-year mortgage from a 30-year.
6. Do you have more than 20% equity in your home? If you have at least 20% equity in your home, try getting your lender to drop your Private Mortgage Insurance (PMI). If your lender refuses, consider home loan refinance to avoid PMI costs.
7. Are you interested in debt consolidation? Debt consolidation is another benefit of home loan refinance for people who have substantial equity in their homes but are buried in other debts. Cash-out home loan refinance will allow you to consolidate debts and save money on payments.
8. Are you looking for cash to cover a large expense? Cash-out home loan refinance can give you the money you need for your child's education or for those home repairs you want to make.

Read about more reasons to refinance your home loan.