5 things to consider before you refinance your mortgage
It’s daunting to have a house payment looming over your head. It’s a constant drain on your money supply. You’re looking at that 30-year mortgage of yours and wondering if you could get this done faster.
It’d be great to knock it out in 15 years instead. You’d get that weight off your shoulders, raise your equity, and have full ownership of your house.
Before you go forward with this, make sure it’s the right time. We’re going to take you through some guidelines to bring you to the best decision.
1. You need to have a steady career
When you first take out your loan, you’re probably also first starting out in the workforce. You’ve taken whatever you can find and haven’t held your position for long. Most people go through a prolonged period of this career struggle, especially right now.
Wait until you have moved out of this precarious position. You have carved out a name for yourself in the company. You do not see yourself seeking another job, nor do you see yourself losing it. That is when to refinance from 30 to 15 year mortgage.
If you’re still trying to figure this out, consider speaking with a career counselor to help you zero in on something.
2. What’s your income now as compared to then?
You took the 30-year mortgage because it required a slower payback in smaller increments. Payments on a 15-year plan are significantly higher.
Find out how much they become and if you can pay them comfortably. If you are still worried about the cost, that’s a sure sign you need to hold off.
If you’re looking for ways to find more money, you can look into some side hustles that could bring in more revenue.
3. Build up a good credit score
You’ll need a credit score of at least 620 before you’ll be considered for refinancing in the first place. If you’ve struggled to build good credit, it’s not too late.
The first thing you can do is put off any big purchases for at least six months unless it’s absolutely necessary. From now on, pay all of your bills promptly. If you’ve had a pattern of impulse buying, only buy what’s necessary for now.
If you make these changes, your road to good credit has already started.
4. How much disposable income do you need?
Your current loan is more affordable for people with more small children to look after and less money. As you accumulate money, you also have less to pay for.
What are you responsible for? Is there anyone under your care? Are you paying for anyone’s tuition? Do you or any family members have any medical needs?
Think about how much money you need to take care of yourself and any dependents.
5. Watch out for the prime interest rate
It isn’t just the things you do. It’s about what’s happening in the world. The things that impact our lives most aren’t always in our control. However, we can watch them and respond in a way that benefits us.
During times of economic uncertainty and inflation, you should hold off on making big financial decisions. However, if the prime interest rate drops and you see yourself keeping this house, you’re ready to refinance!
Make a calculated decision
Refinancing is no small change. It’s something that is well-timed and well-planned. There may be changes you need to make in your spending and lifestyle to afford it.
Even if you aren’t ready for it, you now know how to work toward your goal. Every decision you make about your finances will impact your future. That means you can make your future whatever you want it to be.