Buying a home is one of the most significant financial decisions you can make. A mortgage is a long-term financial commitment, with many people making 20 to 30 years of payments before they own their home.
When interest rates drop, it can be tempting to refinance your mortgage. If your area’s home values have risen, your home may also be worth more than the price you paid. This means your equity has increased, and you may be thinking about accessing your home’s equity and refinancing. In some cases, refinancing may be a smart decision. Here are a few criteria to consider if you’re wondering if now is the best time to refinance.
1. Financial Benefits
You may be able to refinance your mortgage and benefit financially. If mortgage rates have decreased substantially, you may lower your monthly mortgage payments or shorten the term of your mortgage. If you decrease your monthly payments, you will have more money each month to add to your savings account or use it for other expenses.
Reducing the term of your mortgage means that your monthly payments will either remain the same or increase slightly, but you will decrease the remaining number of years before you pay off your mortgage. Paying your mortgage off early can reduce the amount of interest you pay because you’re carrying the debt for a shorter period.
If you want to refinance a home loan, you can research your options through reputable loan comparison sites. There are plenty of online tools that can help you understand more about your loan amount, your current mortgage, and what your new mortgage would cost you. You can compare interest rates, monthly payments, and other terms to determine how much money you could save by refinancing. It can be confusing when you’re trying to figure out the benefits and costs—is a lower monthly payment worth the higher interest rate? Has your home equity increased enough to make considering a new mortgage worthwhile? By using an online calculator you can figure all of this out with ease, so be sure to use the tools at hand to make an informed decision.
2. Renovations and Repairs
Your mortgage is only one of the costs to you as a homeowner. In addition to taxes and insurance, you are also responsible for the cost of maintenance and home improvement. It’s common to spend as much as 3% of your home’s cost on annual maintenance. Typical maintenance expenses include changing HVAC filters and having ducts cleaned, removing debris from your yard, cleaning the exterior of your home, and maintaining alarm systems.
You may also have more extensive projects that need to be completed. For example, your home’s roof is crucial. If your roof is damaged in a storm or is just old and worn, water may get through the roof and cause internal damage. A leak in your roof can lead to thousands of dollars in structural repair costs if support beams, ceilings, and floors rot through. Personal property may also be destroyed. If your roof needs to be replaced, you can cover the cost by refinancing your mortgage. Turn to a reputable Pittsburgh remodeling company, such as Buccos Roofing. Their expert craftsmen will install a great roof covered by a warranty. That way you’ll have the peace of mind that comes with knowing that the roof over your head is a secure one.
3. Changing Circumstances
Whether you’ve owned your home for one year or five years, unexpected developments can affect your personal needs. In some cases, these are good reasons to consider refinancing your home.
For example, if you bought a small starter home when you were single but have since married and had a child, you may need more space than your home currently has. You may want to consider refinancing your home and using your increased home equity to pay for an addition.
Illness, injuries, and age can also all affect how well you can function in your home. You may need a home customized to your physical needs. For example, if you suffered a stroke and need to use a walker, you may need your doors widened.
Another reason to consider refinancing is divorce. If you wish to retain the home but need to split assets with your former spouse, you may opt to refinance to access your home equity and purchase your former spouse’s property share.
Only you know if refinancing is the right decision for you, as it depends on many pros and cons and changing life situations. Keep all of these considerations in mind and you’ll be sure to find the best way to use your home equity to improve your quality of life.