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You should refinance your mortgage if you would like to save more, with your payments being reduced. This will happen if the mortgage term is shortened or you obtain a lower rate of interest. You can shorten the mortgage term as to pay it quickly. Your monthly payment will increase but you save in interest payments and are free from debt sooner.

When should you refinance? You can consider refinancing if you have managed to build over 10 percent equity in your house. You may be allowed to refinance even if you have 5 or less percent equity, but then you might have to pay a certain sum as to make up for the difference.

Obviously, you should refinance only if the interest rate is low, meaning that it is at least two percent lower than that of your current loan. By saving in interest, you will be able to cover the cost of the new loan. There are some low-cost and no-cost refinance loans, meaning that the cost of obtaining the loan is included. Keep in mind that these loans may be offered with higher interest rates compared to loans which do not include the cost of refinancing.

Before you decide whether to refinance or not, you should think of what you are seeking to accomplish. Keep in mind that a refinance will not pay off your debt – it will restructure it. This means that you will get a different term and interest rate, with interest rate reduction being among the most common goals of refinancing. Some borrowers, however, prefer to extend the loan, thus reducing their monthly payments. Another goal of refinancing is debt consolidation. If you hold a home equity mortgage and a first mortgage, you may want to combine them into a single fixed-rate mortgage. This will level out the payment amount over the term of the mortgage. In fact, many people choose to refinance because they want to get into or out of an adjustable-rate mortgage. Homeowners prefer the adjustable-rate mortgage in a high interest rate environment. The reason is that the interest rate is normally much lower than that of a fixed-rate mortgage with a term of 30 years. However, when it comes to a low interest rate environment, the differential between both mortgages is not as big and many homeowners go with a fixed-rate mortgage.

When you think of refinancing, you should consider whether your personal/ financial circumstances and the timing are right as to apply for a new mortgage. It makes sense to refinance if you will be living in your home for awhile. Take into consideration the closing costs. Think how many lower payment months will be required to recoup the mortgage’s closing costs.

Depending on your individual requirements, you may want to either shorten or lengthen the term of the mortgage. One of the major goals of refinancing is to get extra cash as to make certain purchases or to pay off your debts.

When is refinancing not a good idea? You should not refinance if you have had your mortgage for a long period of time. Close to the mortgage’s term, you build equity because more of your payment goes toward paying the principal amount. If you choose to refinance your mortgage late, this will restart the process of amortization, and more of your payments will go toward paying interest.