The Answer to the "Should I Refinance?" Question
To homeowners who find the specter of being in debt uncomfortable, paying off their mortgages has always been particularly important. These are the people who accept higher monthly payments than they could ever reasonably afford - just so that they may be free of the burden of a home loan sooner. Now this is the opposite of the kind of irresponsible financial behavior they love to talk about on the talk shows. As admirable as all of this seems though, this may not be as financially sensible as you would think. This year alone, most homeowners who have chosen to refinance their mortgages have accepted the additional burden of extra closing costs just so that they could feel free of their loan. "Should I refinance at any cost to be free of debt?" This is the question they need to answer.
Most families don't enjoy paying down their mortgages in such a hurry of course. They do this though, to prepare themselves for retirement. They don't do this in consideration of low rates or anything. Ever since the economy slipped into this major recession, homeowners nearing retirement have been particularly anxious about clearing any debt out of their lives. They pay down their credit cards, their mortgages and any personal loans they have. And they make sure that they don't borrow any more than they already have.
The "Should I refinance?" question today is particularly easy to answer. Interest rates are particularly low - refinancing can simply be a no-brainer. What isn't smart today is falling over yourself to pay a mortgage down before it is time or paying extra closing costs for it. While it might seem like a smart move heading off interest payments that come with a longer-term repayment plan, it isn't a smart move to take money away from investments in the stock market to pay a mortgage down. If you put your money in the stock market, it could earn enough to pay the interest on your mortgage and then some. Typically, you make 25% more investing money in the stock market than you save on your home payments.
In some situations though, the answer to the "Should I refinance?" question can be a bit more positive. You could consider prepaying your mortgage is you have a huge emergency fund in cash lying around. You could also do this if you have a considerable amount put away in retirement savings and if you plan to live in your house for at least 10 years.
Of course, to most people, the whole decision turns out being an emotional one. People just want to pay off their homes and really own them outright. And they even neglect their expensive credit card debt to make this happen.
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