Things to Remember if You’re Thinking about Refinancing

Interest rates are a bit like the weather — they’re constantly changing.  Sometimes they’re up, and sometimes they’re down. Since they happen to be at historic lows right now, you might have heard that it could be good to think about refinancing any debt you have, whether that’s a mortgage or other loans.

Before you sign on the dotted line, remember to think about what your goals are, and what the side effects of your decision might be.  For example, you might want to lower your monthly payment (yay!), but does that mean you’ll be paying for an extra 10 years (boo…)? Or, you might want to increase your payment and shorten the length of the loan, but have you thought about how those payments will work in your overall budget?

So if you’re considering refinancing, here are some key details to pay attention to:

  • Monthly payment: how much will you pay each month?
  • Length of term: how many years or months will you be paying off the loan?
  • Interest rate: what percentage of the principal will you be charged for the loan?
  • Total interest: how much will you pay over the entire life of the loan?
  • Fixed vs variable APR: will your interest rate stay the same, or will it change?
  • Balloon payment: will you be expected to pay a big lump sum at the end?
  • Points: how much will you pay in order to get the interest rate you want?
  • Fees: how much will you pay for the refinancing process itself?

If you’re not already thinking about refinancing, it could be a good idea to use an online loan calculator to just run the numbers and see what your options might be.

Now that you’ve got the details, think about how this fits with your other life circumstances and money goals over the life of your potential new loan.  For example, when we considered refinancing our mortgage, I thought about what year we’d finish paying it off, how old we (and our kids) would be at that time, and what else would be happening in my family’s life at the time (college bills, retirement on the horizon) to help us think about whether that would be a good choice for us.  And of course, check your monthly budget to make sure the payment fits, as well as your Goal Envelopes to make sure that paying for the refinanced loan will still allow you to stay on track for your long-term goals.

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