3 important decisions about refinancing, mobile view banner, Aug 2021 blog, Travis CU

Refinancing? 3 Important Considerations Before Making a Move

Many homeowners are feeling the pressure to refinance their mortgage in order to take advantage of low interest rates. However, there are several key considerations to take into account to ensure that you are truly making the best financial decision for you and your family.

1. How long are you planning to stay in your current home?

If you are planning to move within the next 1-2 years, the costs to refinance may not be worth the money you’ll save on your monthly payment. If it takes longer to recoup the upfront cost of refinancing than the time you plan to stay in the home, refinancing is not a good idea.

2. Do you have a lot of credit card debt?

A cash-out refinance can certainly help with paying off some of those high interest cards. Keep in mind that you will most likely pay a higher rate for your refi and depending on how much equity you have to cash out, the closing costs, fees, etc. can negate the financial benefits. Additionally, if you have less than 20% equity in your home when you refinance, you’ll be required to pay PMI (private mortgage insurance) which increases your monthly payment. And, once you’ve got more room on your credit cards, be wary of falling back into bad spending habits and accumulating debt again.

3. Do you know your credit score?

Lending standards have tightened in recent years. The extremely low interest rates that are luring people to refinance may only be relevant to those with the highest scores. Typically, a credit score of 740+ will qualify you for the best rate. Knowing your score before you talk to a lender will better prepare you for the options that you will have.

The bottom line is to do your homework and be prepared before talking with your lender. Knowing your credit score, how much equity you have in your home and thinking through your future plans with your current home will allow you to make the best decision on your refinance.

Have more questions about refinancing? Travis Credit Union is here to help every step of the way. Visit our home loans made easy resources page for more information or to schedule a meeting with one of our expert loan advisors.

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