Rock bottom refinance rates like these can be pretty irresistible. But does that mean the time is right for you—your family, your financial outlook, and your home situation—to refinance?

With par rates for 30-year mortgages still anchored to the floor at 4.5 percent (one of the lowest rates in recent history), now might seem like the best possible time to refinance your home. And here at Texas Lending, we make refinancing easy, both with the lowest rates in the industry, and the best customer service and support you’ll find anywhere in Dallas.

But the decision to refinance involves far more than just a rate number. So here are four basic questions to ask yourself before refinancing your home:

1. Has My Financial Picture Changed?

Financial situations are fluid for most people. So refinances offer a way to “update” your home loan commitment in a way that better matches what’s currently in your bank account and in your future.

Let’s say you bought a home in 2005 when home lending rates were a little bit higher, and your income was a bit lower. A refinance could put you in position to pay off the remaining principal on the same time table you’re currently paying. The monthly payments will be higher, but you’ll save thousands upon thousands of dollars in interest payments over the long run. This move also makes sense for folks who have recently paid off other debts like college loans or car payments (and thus have extra money to pay down principal).

Similarly, if you originally bought your home with an adjustable-rate mortgage (which usually features lower initial rates, but less long-term stability) as a way to afford it, it’s probably a good time to refinance with a new fixed-rate mortgage. If you can afford the new payments, long-term financial planning will get a lot easier.

3. Do I Have a Long-Term Use for a Short-Term Cashflow Solution?

Inversely—let’s say your long-term financial future looks promising, but the recent recession has caused some short-term cashflow problems that are keeping it difficult to make the investments you need to thrive. A home refinance can be a great way to gain access to the cash you need (at much lower rates than, say, a credit card).

In other words, if you refinance for the full amount of your home, but only need part of that to actually pay off the home, the rest is available for you to use however you need.

This is especially useful for folks stuck in a bad housing market. Instead of selling at a slump-driven low price, it might be a good idea to stay in your house for a few years and invest in home improvements in the meantime. That way when your local housing market improves, your house will be much better positioned to sell. Now is a great time to refinance for this.

But, of course, if the allure of the extra cash is an upgraded TV or car, you might want to think more carefully about the long-term debt this refinance will bring with it. Never borrow money just because you’re getting great rates.

3. Do I Have Home Equity?

In most cases, you’ll need more than 20 percent equity in your home in order to refinance without having to pay for private mortgage insurance. The extra costs involved with insurance could cancel out the savings you’d get from a refinance.

4. Do the Low Rates Matter to My Financial Picture?

This is a bit of a no-brainer, but it’s important to look carefully at how the numbers fit into your financial future — not just at what nationwide housing market analysts are saying.

We know the feeling — with rates stuck happily at rock bottom, there’s nowhere to go but up. And with the economy slowly improving, it can almost seem like a ticking opportunity clock that’s about to expire. But just because the rates are favorable for most people, it only matters, of course, if you’d save compared to the interest rates you’re currently paying on your loan.

If your current loan has you in good financial shape, don’t take on the extra debt for just a minimal rate improvement. Stay clear-eyed, and do what’s right for you.

At Texas Lending, we’re committed to making it as easy and painless as possible for those in sound financial position to buy a home or refinance a loan do exactly that. But we’re also committed to caution and sound lending practices (the very ones that some lenders across America abandoned, contributing to the housing crash).

If you’re unsure, come talk to us. Or give one of our home refinance loan specialists a call for more information.

About Kevin Miller

Kevin Miller, Owner & CEO of TexasLending.com. TexasLending.com provides expert service in the field of residential mortgages.

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