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Is mortgage refinancing right for you?
If you have been
living in your home for a while, it might be the right time to consider
refinancing your mortgage.
There are many good reasons to consider refinancing,
including lowering your interest rate,
consolidating your bills, shortening your loan term,
switching from an adjustable to a fixed rate or taking advantage of your home's
equity.
Rate Reduction
Generally, if your closing expenses can be recovered within the first 30
months of the new loan,
mortgage refinancing is probably a good idea.
Loan Term Reduction
There are several advantages to reducing the term of your existing loan.
Although you may experience slightly higher monthly payments,
a loan term reduction due to mortgage refinancing often translates into a
significant reduction in interest costs, as well as a more rapid build-up of
equity.
Switch From Adjustable to a Fixed Rate, or to a New ARM
You may have an adjustable rate mortgage (ARM) you're not entirely satisfied
with. Maybe the rate is higher than you like, or the potential for rate
increases looms ahead.
If you plan on staying in your home at least five years, now might be an
excellent time to switch to the payment security of a fixed-rate loan. Or, if
you plan on moving in less than three years,
consider refinancing to a new ARM to take advantage of the low starting rates
that may be available. Even if the new ARM's rate rises at the first adjustment
interval, the starting rate may be low enough to offset any increased payment
costs.
Mortgage Consolidation
If you are carrying a first and second mortgage on your home, and want to
combine the two loans into one favorable rate, mortgage refinancing might be for
you.
Tax-free Cash Via Equity
Many borrowers have built up significant home equity over the years through
appreciation and principal reduction. These borrowers may refinance an existing
mortgage to a larger loan amount, with the additional funds used for any purpose
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investment, car, tuition, debt consolidation, etc. And, unlike any other
consumer loan, the interest paid on the "cash out"
could be 100% tax deductible!
(Consult your tax advisor.)
Balloon Payment Due
If you have a balloon mortgage with a lump sum payment due in the near
future, consider refinancing if you are comfortable with the current rate
environment.
Things to Think About
Find Out the Facts First
If you are thinking about refinancing, but aren't sure whether it will
really save you money, it may well be worth a visit to your mortgage
professional who can help you calculate how much your new monthly payments will
be, as well as the cost of refinancing.
Going Through the Process
When refinancing your home, lenders will need many of the same documents you
supplied for your first closing. A new credit check, survey, title search and
insurance, an appraisal, and an inspection are usually required. Depending on
the loan program you select, you may also be charged loan origination fees and,
perhaps, points.
As mortgage interest rates begin to drop, many homeowners'
thoughts turn to refinancing. And with good reason! When your existing loan is
replaced with one that has a lower rate, you benefit from lower monthly
payments.
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