The decision to purchase a home is often life changing, making a mortgage a big part of one's financial plan and often the biggest piece of debt. And, similar to the stock market, the economic landscape for lending is continuously changing, making it imperative for consumers to review their mortgage regularly.
With interest rates remaining near historic lows, many are considering refinancing their home to lower monthly expenses, assist with a long-term payoff or consolidate debt—essentially to put themselves in a better financial position. Yet reasons to refinance are not limited to interest rates alone, and the "right" time to do it may vary for each consumer.
To hone in on key refinancing considerations, I chatted with Vince Giacalone, a mortgage banker with Residential Wholesale Mortgage (RWMI). Below is our collective list of motivators and considerations for refinancing:
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
What's Your Timeframe?
Before jumping into refinancing, determine your plan for the home: What is the estimated time you plan on owning the home? Is it two years? Is it 20 years? Determining that timeframe will help dictate the appropriate loan program for you and help you choose either a short-term or long-term hold strategy.
As Giacalone puts it, "friends don't let friends pay points." In other words, paying points to obtain a mortgage only benefits the consumer in specific, long-term scenarios. So, have a good understanding of your timeline before you refinance.
Know Your Motivators
What is your specific reason for refinancing? Is it to obtain the lowest possible rate, to protect the loan over the long haul or to improve your monthly cash flow? Or are you considering home improvements? It's important to determine the motivation prior to making the move. In a low-interest-rate environment, some consumers may see immediate monthly savings and opt to refinance for that reason. Others may use a cash-out refinance to build an addition to the house, consolidate their debt or invest the money elsewhere.
Interest Rates
Interest rates aren't the basis for a refinancing decision, but they can certainly play an important role. With current interest rates near historic lows, consumers may be taking a closer look at their statements and assessing where they stand. "Taking the mortgage temperature can either show consumers they are well positioned or serve as a wakeup call," says Giacalone. As each scenario is specific to the person, the refinancing decision should be made based on all aspects of the interest-rate environment.
Similar to the decision-making process involved in the original purchase, it's important to review one's reasons for refinancing and whether it's the right time. Personal situations vary, so be cognizant of your motivators and goals before refinancing your home.
Taylor Schulte, CFP® is founder and CEO of Define Financial, a San Diego-based fee-only firm. He is passionate about helping clients accumulate wealth and plan for retirement.
-
What Is a Qualified Charitable Distribution (QCD)?Tax Breaks A QCD can lower your tax bill while meeting your charitable giving goals in retirement. Here’s how.
-
Embracing Generative AI for Financial SuccessGenerative AI has the potential to reshape how we approach learning about and managing our personal finances.
-
10 Ways Your 1031 Exchange Can Go Horribly WrongDon't let your tax-saving strategy become a financial nightmare — discover the hidden pitfalls that could turn your 1031 exchange into a costly disaster.
-
Your Loved One Fell for a Romance Scam: What Not to DoConfronting them probably won't work, but asking them some key questions and urging them to take certain actions could.
-
Do You Feel Like Somebody’s Watching You? It's Your CarWhat's worse, you gave your vehicle manufacturer permission to watch you — no matter what you're doing. What are the car companies doing with that information?
-
The Best Ways to Use Your Year-End Bonus (and the Worst)'National Lampoon's Christmas Vacation' shouldn't be anyone's go-to for financial advice, but it does remind us how not to spend a holiday bonus.
-
Never Talk About Money? For Women, That Can Spell DisasterHow can you plan for retirement when your husband holds the purse strings and talking about money is taboo? Help is at hand for this common problem for women.
-
One Cure for Legal Headaches: The Advice of Outside CounselSometimes your lawyer is too involved in whatever deal you're trying to swing, but outside counsel has no skin in the game and can tell you like it is.
-
Year-End Retirement Tax Planning Actions if You Have $1 Million or MoreConsider implementing these four strategies before December 31 to potentially improve your tax situation for this year and the future.
-
25 Financial Moves to Consider Before December 31Tidying up your financial house before the New Year kicks off will put you in a great position to have a financially satisfying and successful 2025.
