Mortgage Refinance Facts
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by: marciafreeman
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Not everyone stays with the same mortgage for the entire length of its term. Interest rates will most certainly change over the length of a 15, 20, or 30 year loan, and a homeowner would be wise to refinance his mortgage loan if rates drop. Refinancing can result in big savings on interest charges, but homeowners should be aware of the pros and cons before deciding whether to refinance a mortgage.
To be sure, there are some good benefits to be realized if you decide to refinance your mortgage. The biggest is the lower monthly mortgage payment you will have by paying your present mortgage loan off with one bearing a lower interest rate. Refinancing a fixed rate or an adjustable rate (ARM) loan one with the other can have a significant impact on your monthly mortgage obligation. Keep in mind, though, that ARMs initially offer low rates that will fluctuate over time. This fluctuation can be overly and unnecessarily stressful and you will spare yourself years of aggravation if you can refinance your mortgage with a fixed rate loan. You can also build equity faster if you refinance your mortgage with a loan having a shorter term, as the shorter term translates to higher monthly payments that pay principal down faster. Shorter term loans also mean lower overall interest charges.
Savings will not be realized right away when you refinance your mortgage as you must still come up with the closing costs on your new mortgage loan. These costs typically include application, origination and appraisal fees, insurance premiums, title search fees and county clerk fees, and the discount points paid upfront to lock in that lower interest rate. Any initial savings will be offset by these fees unless your new interest rate is at least one half a percentage point lower than your current loan.
Be sure to review your future plans before committing to a refinance of your current mortgage. You may not realize any savings if you plan to move within a few years. Refinancing makes sense only if you plan to stay in your current home for the long term as it could take several years to recoup the fees you paid at closing. Evaluate your credit history, too. A low credit score and high debt to income ratio will have an adverse effect on your loan qualification chances. Lenders tightened up their lending practices as a result of the 2008 and 2009 financial crisis, and what may have slipped by a couple of years ago could disqualify you now.
References Home mortgage . Mortgage loans .
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