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A Good Look At Mortgage Refinancing
Mortgage refinancing involves taking out a new home loan and using some or all of that money to pay off an existing loan. If the interest rate on your new loan is lower, then you should be saving money. That is the great thing about mortgage refinancing.
No Time Like...?
There are two ideal times for mortgage refinancing. If you have an adjustable rate mortgage, a great time for this is when interest rates are steadily rising. Mortgage refinancing at these time is particular attractive if you choose a fixed rate mortgage. If you shoot for a rate near your present adjustable rate, you will avoid paying increasing costs when the adjustable rates start increase.
Another good time to consider a refinance is when you can save money by getting lower interest rates. You need your monthly savings to be able to finance the costs while you are still living in the home. If you sell your home before the refinance period is complete, you will not save anything.
Cash flow problems may tempt you to lower your monthly payments by refinancing for term extension. This does not seem to be a good reason for a refinance. Unless you get a lower rate too, you will not be saving any money. It will, in fact, cost you money. Extending the term might help your cash flow situation temporarily, but you will end up paying more in total interest.
The total refinancing cost is made up of points, closing costs, and private mortgage insurance premiums that you pay when you take out the new loan. The points mentioned are pre-paid fees. Every point amounts to one percent of the amount that you are borrowing. If you plan to stay in the house for a while and can afford it, consider paying more points in the beginning as may get you a better interest rate and save your money in the long run.
Closing costs include a lot of fees like appraisal fees, title search fees, and recording fees, among many others. Sometimes, you may be required to have PMI. The premiums for this type of insurance reduce your savings from the refinancing process. You may also encounter a lot of hidden costs. If you pay less interest on a new mortgage, you may deduct less from your income tax return. If you pay higher taxes, then you are not benefiting much from savings because of the refinance.
There is a lot to think about when you consider mortgage refinancing. Even after determining all your costs, you still have to think about how long the refinancing will take to pay for itself. Think long and hard and consider your situation well. You are the best person to say whether this is a viable option for you or not. If you do go for it, do more research and see how you can take advantage of offers, policies, rates, and term lengths. Be wise about your financial situation, and you will end up making more confident decisions.
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