If you’ve been thinking about refinancing your Florida home, you’re not alone. There’s been a wave of mortgage refinancing this year as interest rates drop and people strive to save money in the face of economic instability.

According to a September 23 report by the Mortgage Bankers Association (MBA), mortgage applications increased by 6.8% for the week ending September 18, 2020—and refinancing made up 64.3% of total applications.

What do you need to know to decide whether refinancing is right for you?

Now Is a Good Time to Refinance in Florida

All things considered, it’s an opportune time to consider refinancing your mortgage in Florida cities such as Miami, Fort Lauderdale, and West Palm Beach. Florida’s interest rates are the lowest they’ve been all year, according to data compiled by Trulia.

Source: Trulia.

Because of the uncertainty brought on by the COVID-19 pandemic, many people are inclined to take out a line of credit in case they lose their jobs or have any other emergency need for cash. But also thanks to the uncertainty of the times, many banks hesitate to extend lines of credit.

Some people are turning to refinancing, which can be a more accessible way to free up cash while also lowering your monthly expenses. If the pandemic has affected you, then the extra money could help see you through rough times. If you are doing well, then consider applying the freed-up cash to your retirement savings or retirement accounts.

8 Questions to Ask Yourself When Thinking About Refinancing

The decision to refinance isn’t all about the lower interest rates. You’ll need to consider multiple factors, including the fact that you’ll have to pay fees and closing costs if you do refinance.

Let’s take a look at a few things to consider when deciding if now’s the time to refinance your home.

1. Does Your Current Mortgage Have an Early Payment Penalty?

If so, you may not save any money by refinancing.

2. How’s Your Credit Score?

If your credit score has improved since you last took out a mortgage, the rate you can get might be much better.

This holds true even in times when refinancing rates in your area haven’t gone down. You’ll generally see a percentage point or two in difference between someone with excellent credit and someone with moderate credit.

3. Do You Have an Adjustable-Rate Mortgage (ARM)?

If so, you might benefit from taking advantage of refinancing when rates are low. You can convert to a fixed-rate mortgage so that your payments won’t increase when interest rates climb.

4. Do You Need to Lower Your Monthly Payment?

If your budget is tight and you need a lower mortgage payment, refinancing might be a good solution. If you are entering retirement or have retired, a lower monthly mortgage can free up more money—important as you make the transition from earning a salary to living on a fixed income.

Look into whether you would benefit from taking what’s left of your 30-year fixed mortgage and refinancing the outstanding balance into a new fixed mortgage (15 or 30 years) with a lower total (and therefore a lower monthly payment).

Of course, this is only applicable if you’ve been paying on your mortgage for several years and have built up at least 20% equity.

5. Are You Planning to Stay in Your Home for at Least Seven More Years?

If not, you may not have enough time to make up what you’ll lose in closing costs if you refinance now.

6. Do You Have Big Expenses Coming Up?

If you need to make major home repairs or pay costly medical bills, refinancing could be a way to access more cash. At closing, you’ll have the option to take out some of the equity you’ve earned in your home.

7. How Much Will Closing Costs Be?

Are closing costs for the new mortgage lower than what you’ll save with your new interest rate? If not, refinancing is probably not worth it.

8. Will You Need Private Mortgage Insurance?

A requirement for private mortgage insurance is usually included when the situation involves an FHA loan or if the borrower will be putting down less than 20% of the price. The insurance cost would have to be added to the monthly payments.

Now Is a Good Time to Refinance, but Do It Thoughtfully

Making the decision to refinance your home is never simple. While it might lower your mortgage payments, you will need to pay fees and closing costs. You should never go into refinancing without researching and assume that it will save you money.

Try to take a big-picture view of refinancing: How can it benefit your financial picture now? How can it help your retirement plan?

Our Plantation, Florida financial planning firm encourages our clients to reach out to us whenever they’re considering a big decision like refinancing. We look at its potential benefits and cons in light of their overall financial situation and goals. We suggest that you take a similar approach to your refinancing decision.

Schedule a complimentary consultation with one of our fee-only financial planners to discuss your personal situation.

This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.