With interest rates still sitting at all time lows, many people are thinking about refinancing to get their rate locked in as low as possible. However, a lower interest rate isn’t the only factor that needs to be considered when determining if a refinance would be beneficial. Some other factors that also need to be considered are:
1. What fees are associated with the refinance?
Refinance fees are generally financed into the loan, but still need to be considered as fees that offset future interest savings. As a rule of thumb, to pass a “Benefit to Borrower” test the total fees need to be offset by interest savings within the first 36 months of the new loan.
2. How long do you plan to keep the loan?
If you intend to pay the loan off in 10 years or less, the loan may still pass the Benefit to Borrower test on paper, but because of the aggressive principle reduction schedule, there may not be enough time for the interest savings to offset the closing costs.
3. How long do you intend to live in the property?
If you plan to move in the next 1-2 years, a refinance may not be worth the cost.
4. What other debts do you have?
Refinancing doesn’t always have to be done solely to lower a rate or payment. If you have other debt (credit cards, home equity, etc) and have sufficient equity in your home, you may want to refinance to consolidate your debts into one monthly payment.
These are just some of the things you need to consider when deciding if refinancing is right for you. Every situation is unique, so your best bet is to call our Real Estate Department at 319-395-6454 and make an appointment to visit with one of our experienced Mortgage Loan Officers. We can explain all your options and help you determine if refinancing makes sense. You can also get started by filling out our convenient online application.