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Should You Refinance or Pay Cash?


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The thing about refinancing is that there are many external factors that come into play to shape whether or not it is the right choice. People choose to refinance for many reasons; to save up on actual payment and funnel that excess towards retirement; to cash out equity and have more money in pocket; to cash out for renovation to their kitchens or bathrooms. Either way, it is important to know when the time is right to refinance, or just pay cash. 

Savings

The first thing to consider is what you stand to save by refinancing. Best case scenario, you will reduce your monthly mortgage and save on the overall interest in the long run, but this isn’t always the case. Your mortgage broker can run you different scenarios and show you the potential costs and savings associated with each, but it is important to remember that refinancing costs a lot of money in the way of fees, appraisals and mortgage points. 

Timeline 

Another thing to consider is how long you intend on keeping your home. Refinancing only works and makes sense if you plan on living in your property for several years—or at least beyond the length of your mortgage term. Most refinancing take months, and even years, before they actually save you money, so if you’re planning on moving or selling your home relatively soon, refinancing is not the right option for you. 

Qualification

Qualification goes without saying. Just having a home and making timely payments isn’t enough. Your ability to refinance depends on a whole lot more, such as the amount of home equity you have, your income level and your credit score. Since refinancing requires an entirely new underwriting process, the lender needs to ascertain that your home is worth more than the loan value and that you can afford the payments and are in good standing credit-wise. 

So before refinancing, take into account current interest rates, the duration you plan on staying at your home and your ability to actually qualify. Take some time to research interest rates and figure out the costs you would incur to determine whether or not refinancing is for you. 

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