Mortgage interest rates have bumped up a bit since Trump was elected the next president. And it appears that the Federal Reserve is poised in December 2016 to increase interest rates by ¼ of a point or so. Still, interest rates are continuing to be very low by historical average, and it may still be tempting for you to refinance into a lower interest rate mortgage.
But whether you should refinance or not depends upon your personal financial situation. And it is not always just a matter of getting a lower monthly payment.
Below are some good reasons you might want to keep your Wells Fargo mortgage, and also reasons why you may want to refinance it:
Getting a Lower Interest Rate
The most common reason people refinance is to get a lower rate and save money on their payment each month. Getting a lower interest rate also will save you thousands out of your pocket in interest over the coming years.
Note that refinancing and reducing your rate does not just help you to save money each month. It also will increase the rate that you are growing your equity.
For many of us, refinancing a mortgage would make sense if you can save at least 1% on your mortgage interest rate with a new loan.
However, there are situations where you may want to stick with your current loan. For example, if you are close to paying off the mortgage in a year or two, you may want to just hold off and pay off your loan. Also, if you plan to move next year, most experts would recommend that you leave the mortgage as it is.
The costs of refinancing are always at least a few thousand dollars, so you may be better off not refinancing in these circumstances.
Shortening the Term of the Loan
Another common reason to refinance with a lower interest rate is that you can at the same time put your 30 year loan into a 15 year loan, and sometimes the payment may not even change that much.
Most financial experts would advise you to get a 15 year mortgage and pay off the loan as fast as you can so that you own the home outright. That is, if you can afford a higher monthly payment; not everyone will be able to get a payment roughly the same as on the 30 year mortgage. For many people, the monthly payment can be several hundred dollars more per month.
On the other side however, some experts argue that holding low interest mortgage debt for a long period of time leaves you with available cash that you can invest in high interest investments, such as real estate. Some might suggest that you go ahead and refinance but continue to have a 30 year loan.
Whether you refinance into a shorter term loan really comes down a great deal to what your income is going to look like in 10 or 15 years. If you are close to retirement at that point and anticipate a lower income, you could argue that getting the mortgage paid off by that time makes financial sense.
Going from a Fixed to Adjustable Rate
If you are in an environment where interest rates are dropping and are likely to stay low for a few years, you may decide to refinance into a lower interest ARM from a fixed rate.
The rate can reset, but if the interest rates look as if they will stay in the same range for a few years, you can save a bundle each month and put it into other investments.
On the other hand, you may want to not refinance your mortgage in this situation if having a variable rate mortgage will prevent you from sleeping at night. Some homeowners are just too risk averse to have an ARM.
Another major reason people refinance is so they can tap equity and put it into investments, home renovation, a college education or some other worthy endeavor.
Tapping equity to pay for major, worthwhile expenses can make sense because the interest is tax deductible. Putting low interest money into a major home improvement or a real estate investment that makes above 10% can be a smart financial decision.
However, you may want to not refinance and pull out your equity if you think you might have any trouble making the additional payments. Also, if you think your income will not increase in the next few years, you could argue to just leave well enough alone with your current Wells Fargo mortgage.
Refinancing your home loan can make a lot of sense if it reduces your payment, shortens the length of the loan, and helps you increase equity. We also like refinancing and putting the money into smart, income producing investments.
However, there are many reasons that you may not want to refinance. Ask yourself how long you want to stay in the home, what your income picture looks like in the next 10-15 years, and also how much money you would save with the refinance.