A guest post from my friends at Credit Sesame -
The housing market is still at almost record lows. Though the rates have been steadily rising the past year or so, they are still far below the rates that they had before the market fell. These days, even people who are sitting comfortably in their mortgages are debating refinance due to the extremely low rates that are available on home loans. You can use the money on anything you wish, from working on your yard to consolidating your existing debt. There are a few things to consider, however, when you are thinking of refinancing your home.
Value of Home
One of the reasons that it has become so easy to get a low home loan is the value of housing has dropped considerably in the past few years. There are many private residences that have dropped over 40% of their value in just a few years.
The reason that you can get loans so cheaply against these homes is that they haven’t proven to have a steady worth. Basically, your house isn’t a proven asset in today’s market. Banks make money on high risk loans. So when you are looking at a mortgage refinance, remember that the bank may consider you a risk.
How Long Will You Live There?
If you’re not going to live in your primary residence for more than five years, it is not a good idea for you to go in for a refinance. The reason for this is that the first five years on a home loan are not really paying against your loan. Instead, what you are paying on is mostly the interest and the fees that are associated with your loan. The loan itself is not going to be paid back or have a dent made on it for at least five years. If you’re thinking about refinance, then it’s important to figure out how long you intend to remain there. If you are not at the level of income that you can afford to take a major loss on your refinancing, then don’t obtain one unless you’re certain you’ll remain in one place for more than five years.
Other Loan Rates
What are your goals? Do you want to landscape or do something to increase the value of your home like hardwood flooring? Do you want to save money for college or purchase a vehicle? Is your final goal a debt consolidation where you can lump your major debts under one umbrella? Depending on what your final goal is, your main bank may have a better option available to you than a home refinance. Check with loan managers at your bank to make sure you’re going with the best option before you proceed with a home loan. There are times where debt consolidation loans can be acquired for less risk and lower rates than home loan refinances.
Regardless of what your final choice is for your lending needs, a home loan may be in your immediate future. However, it’s important to remember that this avenue isn’t the right one for every borrower. If you’re not going to remain in your home for an extended period of time, then you don’t want to be tied to that home via another line of credit. Even if you are going to remain in the home for an extended period of time, you may not get the best deal or rate from your home refinance. In the end, your best course of action is to discuss the issue with your bank’s lending agents to figure out what sort of refinance or loan is best for you.