Along with concerns of a recession and falling housing prices, there are many questions as to how to handle your home remodel. As we’ve discussed in previous posts, the pros of remodeling in today’s market definitely outweigh the cons; so once you’ve completed the remodel, is it wise to refinance?
Reduce your monthly payment.
Just this week the Fed dropped interest rates for the sixth time since September to 2.25%. While this is great news for new-home buyers and those looking to refinance, it does stir concern about inflation. If we are looking towards a period of inflation, it may be wise to reduce your monthly mortgage payment.
Be sure the fees are worth it.
The refinancing process will involve fees, including closing costs, an appraisal fee, and credit check fee. Some mortgage companies such as Countrywide are offering no-fee refinances, but this only means they will work your fees into your monthly payment instead of requiring them up front. When recently consulting a mortgage broker, he advised waiting until you can reduce your interest rate by at least 1.5-2 points, unless you intend to be in your home for over two years. He estimated two years as the approximate amount of time it would take to recoup the expense of the fees.
Calculate your new monthly payment.
For many of us, the rates have begun to reach that level. This handy calculator will assist you in estimating your monthly payment at the new rates. It also allows you to see what rates lending agencies are offering in your area.
Take out an equity line of credit.
Another financial advisor recommended taking out an equity line. He said in many cases, these don’t require fees, and you can reap the benefits of a lower interest rate immediately. He said it is fairly low risk, and you should just keep an eye on the rates as they begin to go up. As long as you lock in a rate once you realize they are going to continue to rise, you can’t lose. He said with the current market conditions, it’s going to be a long time before the Fed decides to raise rates again. Bank of America is offering one such program right now for up to $500,000.
With interest rates so low, you can’t really lose by refinancing your home. Enjoy the benefit of a lower monthly payment, while strengthening your financial position. If you have a more manageable mortgage payment, you are in less jeopardy of something going wrong. If for some reason you have to rent your home, you will have a smaller balance to cover and have a greater chance of preventing foreclosure.