A lot of attention is being paid to current mortgage rates, which are near historical lows. Depending upon your situation, refinancing could allow you to slash monthly payments. But don't let low refinance rates be the only factor when deciding whether or not to refinance. Consider the following reasons why applying for a mortgage refinance might not be such a good deal.
- You've been paying on your current mortgage loan long enough that you've paid down a lot of principal. Are you 10, 15, or even more years into paying off your home loan? It may not make sense to refinance into another 30-year loan at this point. But a 15-year loan might be a smart refinance if you can lower your interest rate.
- You've lost a lot of home equity due to the housing crunch. About 11 million U.S. homeowners are underwater on mortgages, or owe more than their homes are worth. Refinancing might not save you money if you've lost equity and would have to add mortgage insurance.
- Your credit is shot. Recent data from FICO Inc. shows that 25.5% of Americans, or 43.4 million, have credit scores of 599 or below. Even though refinance rates are very low right now, having bad credit means you won't qualify for the best rate. It may make sense to hold off refinancing right now and work on cleaning up poor credit.
Should You Refinance?
Refinancing is like any other major financial decision you could make: it takes careful thought and planning. Don't just follow the herd and rush to apply for a mortgage refinance without running some numbers though a refinance calculator first. While refinancing could be a smart move for your neighbor, it may not help your financial situation.