Mortgage Refinancing Tips - When Should I Refinance My Home Loan
See Jane. See Jane finance her home purchase with a fixed 6.25 percent mortgage rate. See Jane smile, as that was the best deal at the time. Four months later see Jane cry as the mortgage rates slip below the 5 percent mark. What should Jane do? Refinance her mortgage of course!Buying a home is generally the most expensive purchase a person can make during their lifetime. Aside from the negotiated purchase price of the home there are additional expenses such as closing costs and mortgage fees to pay. Upon refinancing a home, many of those additional expenses may resurface. If you are debating whether or not to refinance your mortgage some thoughts you should ponder include:Three Dog Night sang, "One is the loneliest number," however if you are debating refinancing, that is the magic digit. If the current mortgage rates are a full 1 percent lower than your loan, refinancing may be a viable option as that small digit can convert to savings of tens of thousands of dollars over the lifetime of your mortgage. That is because interest fees on mortgages are compounded.
Refinancing a mortgage is very similar to securing one for the first time. Points may be involved, closing fees may be due and the process can initially cost thousands of dollars. However, if you plan on staying put for years it may be worth the initial expense for the long-term savings.
Not all mortgages are created equal and if you previously committed to an adjustable rate mortgage (ARM) with a balloon payment, refinancing your mortgage before the payments spike can be a very smart move.Let us see how Jane decided that refinancing was a smart move. The first step she did was to locate the best mortgage offer around. Based on her credit history and proof of income she ended up qualifying for a 4.875 mortgage rate (over 1 percentage point less than the original loan). Plus there were no points to pay (bonus). However, the process would still cost her around $4,000 up front, ouch! By using a mortgage break-even calculator the expense for the new mortgage weighed against the long term savings from her lowered interest rate would allow the new debt to be repaid in three years. Since Jane planned on staying in her home for at least ten years, that made financial sense.Not everyone has a perfect mortgage scenario like Jane, however by taking the time to crunch the numbers you too may determine that refinancing your mortgage is the right thing move for you!
Mortgage Refinancing Know Your Options
When considering a mortgage refinance, there are several important factors to consider before deciding on a particular type of refinance loan or a specific mortgage company. One of the questions it is important to ask yourself is, -œWhat is the main reason I am deciding to refinance my home?- Are you refinancing to: · Lower your interest rate Many companies specialize in exactly this type of refinance loan. Finding a company that will work with you specifically on lowering your interest rate is not difficult by doing some research on the internet. Try typing in key search phrases specifically related to -œlowering my interest rate- in major search engines.
· Cash out the equity you already have in your home You can use the equity in your home to get cash. Find out exactly how much money you can borrow by searching for a equity calculators online. · Consolidate Your Debt If you have a lot of unsecured, high interest debt (credit cards), it might benefit you to refinance your mortgage and use the cash to pay off your higher interest debt. You might be able to refinance and get more cash up front than what you owe on other debts, allowing you to lower your total monthly expenses and put a lump sum of cash in your account at the same time. There are many reasons you may need to refinance your mortgage, and identifying what your specific needs are is very important before moving forward in the process. Once you know exactly what it is you are trying to accomplish, you can focus on finding a specific type of mortgage refinance product, and a specific mortgage refinancing company that can most appropriately meet your needs. To find this article online, along with others like it, please log on to http://www.financialproductsdirect.com
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Exactly What Mortgage Refinancing Means
Depending on how the prevailing interest rates in the markets behave at any given moment, you may hear quite a bit about home refinancing. Is it right for you? Answering that question takes a fair amount of calculation and consideration; however, you should understand exactly what a mortgage refinance means and why people do it before you jump to any decisions. Refinancing your home is not always the best alternative. What is Refinancing?
A home refinance is the same as a mortgage. Basically, you replace your existing mortgage with a new loan containing different terms. You have the same options available as you did at the time of application for your original mortgage loan and all the fees and closing costs remain roughly the same. You may even work with the same mortgage representative and title company. Why People Refinance People refinance for a variety of reasons. Among the most common reason is to get out of an adjustable rate mortgage (ARM) before the fixed rate expires. Once this occurs, the interest rate and monthly payment can jump around, making it close to impossible to create a successful household budget based on your mortgage expense. Lowering your interest rate is another primary reason to refinance your mortgage. Consumers buy homes in any interest rate environment. Perhaps a builder offers you a discount you cannot pass up or a house you've always loved in your neighborhood goes on the market. Not even industry experts turn down home ownership simply because interest rates are not at their 10-year low. Once rates drop, it's natural to want to trade in your old seven percent interest rate for a shiny new five percent rate. Sometimes, borrowers want to modify their payment amount. Your payment is a function of three things - interest rate, loan term and amount financed - so altering any combination can create a drastic change. In most cases, you want to decrease your payments and can do so by taking advantage of a lower interest rate, but extending your term back to 30 years when you've already paid seven years off your existing 30-year note will also do the trick. The mere fact that you've paid down your original principal balance may lower your payments, even without a substantial decrease in your interest rate. In some cases, you may find it beneficial to increase your payments in order to pay off your mortgage faster. Although a refinance is unnecessary to do so, making the conscious effort to send in double payments or an extra payment every six months is too difficult for some people. There's nothing wrong with that. Refinancing your 30-year mortgage into a 15-year mortgage increases your payments and cuts your term in half. Surprisingly, your new payments are not double the old amount because you've cut your overall interest cost by almost half. Is Refinancing Right for You? Now that you know the reasons why other people refinance, it's time to determine if you should jump on the bandwagon or keep your existing mortgage as it is. Ask yourself a few basic questions to start the decision-making process: How long will I be in my home? This is by far the most important thing to know before you begin a home refinance. If you have plans to move, or have a job that might require relocation, within the next five years, refinancing is probably not in your best interest. Refinance fees and closing costs can equal several thousand dollars. That means you'd need to find a vastly lower interest rate in order to recoup the cost of refinancing before you move. Keep in mind that if you took out a high-risk mortgage due to bad credit and have increased your credit score to qualify for standard interest rates, you stand a better chance of recouping your costs before moving. Can I afford my monthly mortgage payments? With a conventional mortgage, the answer to this question should be yes, unless you experience an unexpected loss of income or increased expenses because your payments do not change. If you have an ARM and the rate is about to expire, this is a different story. Some ARM contracts allow the interest rate to increase a full four percentage points during the first adjustment. Once this occurs, you may be unable to meet your obligations because of the higher payments. In this case, it makes sense to refinance your loan to a fixed-rate mortgage with payments you can afford. Remember that your mortgage representative is your greatest resource during the refinance process. An ethical lender will listen to your refinance goal and let you know if refinancing is right for you. Just be sure to work with a company and representative you trust. Allan Young is a freelance writer who writes about real estate and mortgage refinancing.
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