If you are on the fence about when to refinance your home mortgage, then consider these several factors. I have done a lot of real estate investing and property management, and have a good deal of knowledge when it comes to mortgages as well. There are many things you need to be careful to consider other than just a better interest rate when it comes to refinancing your home. First, ask yourself these questions:

  • How long do I plan to stay in the home?
  • Do I plan to use this home for a second home or investment property after I leave?
  • Am I looking to get cash out of the new loan, or am I looking for a lower payment?
  • If I am looking to get cash from a refinance, what will I use it for?
  • When is the best time to capture the lowest possible rate?

Length of Time in Your Home
These, among other questions are good starting points before shopping rates, etc with your local lenders. The most important question is how long you are going to be staying in the home. If your kids are graduating high school and you are planning on moving, refinancing is not a good option for you. Even if you can get your closing costs down to $2,000-$3,000, you are still having to pay for 2 sets of closing costs - 1 when you refinance, and another when you sell the house. The fees to procure a new loan are just too high if you do not plan to own the house for very long.

On the other hand, if you plan to stay in the home a long time, then look at the potential savings this new lower rate will provide. You have to consider more than just the monthly savings, because you are getting a new 30 year loan, and so your payments are going to be extended by the same number of years as you have already been paying on your home (if you have been paying on your house for five years, and you get a new 30 year loan, the total amount of time paying on the house is now 35 years).

Keeping the Home After You Move 

If you plan to keep the home after you move, you should consider refinancing for a lower rate. My philosophy in holding rental properties is to get the most amount of money possible in rental income every month. Some investors look for appreciation over time, but I want to see results right away. So to me, the risk involved with an investment property (tenants and damages, vacancy, etc) merits getting paid as soon as possible. Over time, the rental unit will gain equity, and can still be sold later for a profit. So when it comes to long term second homes and rental properties - yes, go for the lowest payment possible. The renter is paying all of the interest anyway, so interest charges don’t really matter in this case.

The Dangers of Cashing Out Your Equity 

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