Should I Refinance My Mortgage ? - How to decide ?

As important as home refinancing is, you need to really reflect and ask yourself some important question. Because remortgaging is not about getting out of debt but in actual fact prolonging your debt.

I have below some critical question you need to ask yourself while thinking should I refinance my mortgage

As you might have known by now, in today modern world of consumer quest for credit in about almost anything, your credit rating will decide the rate of interest the lender will charge you. On the plus side, if your credit score is above 720 or more, you will probably get a low interest rate. But if your score is lower, you might still get approved, but you will probably pay a higher rate of interest. If your credit report is really bad on the other hand, you will need to quickly start the process to improve your credit score but unfortunately, it take time.

Due to the recent shake up in the banking sector, unfortunately the day of getting low or no-money-down mortgages is long gone. As things stand now, if you don't have at least 20% equity in your home based on current value, not what you paid for it, your chance of getting good rate of interest irrespective of how good your credit report is, is quite slim.

Without doubt, you can still get a remortgage loan with about 10-15% equity in your home, but definitely you will end paying a higher interest rate.

Another determining factor is the length of time you have to stay in your current home taking into account the old prudent financial saying that says, you should only take mortgage refinancing loan if the cumulative monthly savings is better than your closing cost which is about 2-3% of the worth of your mortgage on average.

Therefore, you need to take out your calculator and crunch the numbers. From personal experience, the break even point is between 2 to 3 years on average, and if you intend to stay in your home for that length of time, it would make financial sense to refinance your home. Having said that, make sure the savings is worth the effort you put in.

Lastly, if you have adjustable rate mortgages (ARMs), it might make sense to opt for fixed-rate mortgage to lock in low interest rates to forestall the risk of rate of interest been jacked up in the future. So, if you fall in this category of home owners, the risk of paying higher interest rate in the future far outweighs the costs of refinancing in the short-term.