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Why it may or may not be a good time to refinance your home loan

With extremely low interest rates it may be tempting, but there are many factors to consider.

ATLANTA — Extremely low interest rates make refinancing your home a temptation, but it may not be a good idea for everyone.

Current home mortgage rates are right around 3%, and for many refinancing makes sense.

Financial expert Jini Thornton said there are a lot of “Ifs.”

“Take your time, actually do the numbers to make sure you’re making a good decision,” said Thornton.

The general rule is to refinance if and only if the current rate is at least 1% below the rate you’re paying.

But there are other things to consider, like your credit rating.

“If you’ve taken a ding on your credit score, you may qualify for a loan, but it may not be at the rate you desire,” said Thornton.

Refinancing can save you money and shorten the life of your loan, but remember you’re going to have to pay closing costs and other fees. Refinancing usually costs somewhere between 3-6% of the amount you owe. So, calculate how much you’ll save each month by refinancing and how long it will take you to recoup the cost. If it’s going to take three years and you only plan to stay in the house another two years, you’re not going to save money.

“There are tons of financial calculators out there,” Thornton explained. “You can see if I go from a 3.5% to a 3%, what difference will that make?”

Most lenders want you to have at least 20% equity in your home before you can refinance. That means you owe less than 80% of what your home is worth.

Otherwise, your interest rate will be higher. So will your fees, and you’ll likely have to pay for mortgage insurance if you don’t already have it.



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