Do you feel like your debt is dragging you down? Are your mortgage payments increasing and making it hard for you to keep up with payments? If this situation applies to you, you might be thinking of refinancing. But, will refinancing truly help you save?
When you refinance, you take on a new loan to satisfy one you already had. It only makes sense to do this if you obtain a lower interest rate enabling you to save money.
Generally, you can count on two good times to refinance. If you have an adjustable rate mortgage (ARM) and you’re faced with a continual interest rate rise. You can try to refinance toward obtaining a fixed rate to avoid the higher payments.
If your initial loan is a fixed rate mortgage, you can refinance to obtain a lower interest rate. If you’re experiencing a cash flow problem and want to refinance to lower the payments by extending the term of your loan this is not a good reason. An extended loan will cost you more over time.
Make sure you think of the cost of refinancing. It won’t come free you know. Make sure you don’t overlook fees such as points, application and recording fees, title search and PMI fees. Other closing costs you may have to pay are survey and appraisal charges.
If the loan to value ratio is higher than 80% of the appraised value, you will be required to pay for private mortgage insurance (PMI). It is in your best interest to pay the loan down as swiftly as you can to ensure that you won’t have to pay PMI.
You can maybe benefit from a cash-out financing arrangement if you can manage the extra cash. A cash-out deal is a loan which allows you to borrow more money than what you owe. You can use this arrangement to pay off your mortgage and also any other high interest debt you might have.
If you choose to refinance, make sure your savings justify your costs. It could be just a break-even proposition. Usually, a good rule of thumb is not to refinance if you plan to move within five years. It will be at least that amount of time before you can recover your costs. Calculate this to be sure.
A refinancing loan calculator will help you decide whether it is a good idea for you to refinance. You can probably use your lender’s, or you can easily find one online. You will only need to plug in the required information.
Be aware that your refinanced mortgage is secured with a lien on your property. If for some reason you’re unable to make payments the lender can foreclose and possibly sell your home to pay off the mortgage.
You should really reflect before you decide to refinance. Examine each avenue thoroughly. Learn more about each step you must take. Don’t hesitate to ask. If the move is right, it could lift you out of debt and help make you a happy homeowner.
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