What You Should Know About Mortgage Refinancing
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by: marciafreeman
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Mortgage refinancing entails obtaining a new loan to pay off and replace an existing mortgage. There are several scenarios wherein mortgage refinancing is a good idea.
Most commonly, people refinance their mortgage to take advantage of a lower interest rate, allowing them to save money over the life of the loan. In most cases however, you will have to pay lender fees and other charges that are tied in with the new loan. If you do apply for this type of mortgage refinancing, make sure that the savings from refinancing will outweigh the costs of the transaction. The time that you plan to remain in your home is important to consider, as well. If you decide to sell your home before you have gone through the refinancing period, you will spend more money than if you had never gone for refinancing in the first place.
Another common scenario is when the homeowner has an adjustable rate mortgage (ARM) and the interest rate on that mortgage "re sets" to a higher rate. If you think mortgage rates will continue to increase, replacing your adjustable rate with a new fixed rate mortgage will keep you from paying higher interest costs when the rates go up. Conversely, if you anticipate a decrease in rates in the future, applying for a new adjustable rate mortgage may be a better idea.
If you are having difficulty paying your monthly mortgage costs, mortgage refinancing will not only extend the duration of the loan, but will reduce your monthly payments as well. Keep in mind though that while this will help you out of a financial trouble spot, you will actually be paying more total interest for the duration of the loan. In addition, if the interest rates on your new mortgage loan is higher, you could end up paying the loan off longer than you intend on staying on in the home.
When applying for mortgage refinancing, you should consider factors such as how much saving you can expect each month, as well as what refinancing will actually cost you. To determine if refinancing is really an ideal course of action to take, multiply the amount that you will save each month with the number of months that intend to live in your home. After that, deduct the total costs of the various fees that you will incur with the new loan. If you end up with a negative number, you will lose money on the refinancing. If you go for refinancing, you will be in a better position to either break even or save money if you live in your home for a longer period of time. Even if the rates that you will pay on the new loan is only a little bit lower than what you are currently paying, mortgage refinancing may still be a beneficial course of action. Related Articles Refinance rates |
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