Does Refinancing Your Mortgage Make Sense For You?
Posted by Eric Skates on
You have been paying on your mortgage for several years now, but feel you need to look at the options to see if you could be making wiser financial decisions. Refinancing your mortgage could be the best financial decision. A refinance of a loan is a new loan, based on the balance of your present loan, and whether you are requesting additional cash. There will usually be closing costs. You can use the same lender or a new lender. Most people shop for the best rates for the type of refinance you are looking for. So that could mean a new lender.
The simple breakdown of what the refinance process entails is simplified below. There may be some differences with different loan programs.
- You have an existing loan you would like to improve in some way.
- You find a lender with better terms and you apply for the loan.
- The new loan pays off the existing debt completely.
- You pay on the new debt until paid off or refinanced. The Balance
The reasons to refinance will vary with each individual and each loan.
Interest rates have always been one of the main considerations for refinancing a mortgage loan. When interest rates are low it is easy to see the benefit of a refinance. For example, if you have an 8% loan it would be easy to see the advantage of going to a 4% loan.
Variable Rate Loan
If you have a variable interest rate loan you may choose to have a fixed rate loan, so you have peace of mind that the rate will not suddenly jump.
The interest rates on other loans such as car or credit cards may be so high that it would be wise to consolidate or pay them off. Your payment amounts will be smaller, but longer when you consolidate. If you have four payments that equal $1,000 a month, but can pay them off with a "cash out" loan with the refinance, it may be wise for you. The new payment on the additional money will be less than you are presently paying.
If you plan to stay in your home for a number of years a "cash out " from the equity in your home may be ideal. There can be a number of reasons to get some cash from your home. Home additions, update or complete remodel, needed repairs, buying a major purchase with cash, or college tuition are all legitimate reasons to get cash out of your home.
Paying Off Balloon Payments
Some loans have what is called a balloon payment that is due at a certain time. This means that the rest of the loan needs to be paid in one lump sum at a certain date. Unless you have funds to make that balloon payment, refinancing your loan will pay off the loan before the balloon payment is due.
Shorten the Term of Your Loan
If for example, you have a thirty-year fixed-term loan and your income has increased since taking out the loan you may want to decrease the length of your loan to fifteen or even ten. Your payments will go up, but your interest rate will go down with a shorter term loan. Also, you will pay off the loan in a shorter amount of time.
Dissatisfied With Your Current Lender
Sometimes this may be your motivation to refinance with another lender. If your current lender has given you unnecessary problems or made numerous mistakes, you would be justified to seek another.
Some basics to remember with refinancing. Usually, there are upfront costs involved. Your credit score makes a difference with terms available. The amount of equity and how much of a percentage the lender will allow determines how much "cash out" can be received. A new appraisal on your real estate may be necessary. All of the programs are a little different and depend on the type of loan. The types may be conventional, FHA, VA, Freddie Mac, Harp or other loan programs. Each one will have different features and rules.
To answer any of your questions about what the best solution will be for you, contact the mortgage professionals at Equity Prime Mortgage or give us a call at (877) 255-3554.