Is Now a Good Time to Refinance? (From an Investment Perspective)
By Holly Franklin
Homeowners are often thinking of what they can do to upgrade their home. Making small adjustments here and there, adding fun seasonal decor to boost curb appeal, and conducting long-term home maintenance to keep things running smoothly are all things one might do to increase the value of their home.
If you’re a homeowner, have you ever thought about what your home can do for you? Owning a home opens certain doors, especially in the financial world, that can present you with certain monetary opportunities you wouldn’t have if you weren’t a homeowner.
One of the most well-known ways of owning a home can help you financially is the ability to refinance. Whether you’ve lived in your home for decades or have purchased it within the last few years, it may be possible to refinance your mortgage, save dollars on your monthly payment, and re-deploy those dollars elsewhere for growth. Even if you find yourself in a comfortable financial situation, refinancing may be a smart decision that can allow you to save more of your hard-earned money for years to come.
If you’re asking yourself why refinancing is something you should be looking into at this time, the answer is simple: COVID-19. The sudden outbreak of the virus caused several ripple effects on industries across the globe, including the housing market. Most notably, interest rates have plunged to record lows, causing many prospective buyers to run enter the housing market. In fact, as of early August 2020, rates have hit record low points eight times throughout the year. This means by refinancing right now, you’ll be putting less money towards interest payments over the entire lifetime of your loan. Depending on your current payment and interest rate, you could save hundreds of dollars per month – giving you the opportunity to put more money toward your mortgage balance than you would have had before, allowing you to pay off your home faster than before
The money you save by refinancing may also be a great way to jumpstart your retirement planning as well. When you decide it’s time for you to retire, you want to ensure you have a solid retirement nest egg in place to cover any of your needs. In this example, the hundreds of dollars you would be saving each month from your home refinance can add some extra padding to your retirement funds.
When deciding how you want to refinance your home, there are a variety of factors to consider. One of the most important considerations is the length of time you plan to be in your home. For example, if you’ve decided to temporarily relocate to a less urban location while COVID runs its course, a no-closing-cost refinance such as this one offered by Quicken Loans might work for you. This option is ideal for a home you plan to only live in for a few years - allowing you to pay no refinancing fees upfront, and sell the home before paying too much in interest.
Of course, no one can predict the future. Interest rates can change quickly, which is why it is important to consider taking advantage of low rates now before they go up. A few months from now, the financial landscape could look completely different and your window of opportunity could be lost. It’s important to remember, while you might be financially comfortable now, things can always change. The monthly savings you’d gain by refinancing your mortgage payment now could be the difference between being comfortable in retirement and having to remain in the workforce longer before you are financially ready to retire.
Before making a decision, however, you might want to consult with your financial advisor to help you answer any questions you may have. They can help guide you in the right direction and assess your overall financial situation to help you make the most effective decision for your portfolio and ultimately, your life. After all, big financial decisions can be some of the hardest ones to make without extensive knowledge or research. Having someone you can trust to guide you through it can certainly make the process less stressful. Additionally, PARAGON can run several alternate scenarios for you in your financial plan – allowing you to see the impact of the actions that you take today on your long-term planning.
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