Great Reasons Why You Should Refinance a MortgageArticle Posted by Expert Author: Tony Caro on 09/09/2013
Although refinancing your mortgage might seem like something to worry about, it shouldn't be. There are many terrific reasons to refinance.
The most obvious reason to do so is that you might be able to get better terms and conditions for your mortgage. That means lower interest rates and a preferred duration that is more agreeable to your current financial situation. Also, when you refinance, you could do so in a manner that helps you pay off your home more quickly. Remember, once you have paid off your mortgage, your home is yours and it cannot be taken away provided you keep on top of your property tax payments.
Lowering Your Monthly Payments
Lower monthly payments are the main reason why many people choose to refinance. Lowering payments means that you have some extra money in your bank account to cover other bills or put away for a rainy day.
Refinancing can also be a solution when there is debt from several sources that needs to be paid off. Many homeowners simply roll their debts into their refinance, and make their monthly payments as usual. This can save a lot of stress and frustration that can come with receiving multiple bills in the mail.
Shortening Your Loan
Refinancing when rates are low can mean a shorter time to pay off your home overall. The lower the rates, the more affordable it will be to do this. Many homeowners will refinance from a 30-year to a 15-year mortgage. Although this will result in higher monthly payments, at the end of the day, tens of thousands of dollars can be saved over the course of a mortgage.
Making Your Rates More Predictable
Those homeowners who are currently paying on a variable-rate mortgage can refinance to a fixed term. This provides the benefit of stability. With a fixed-rate loan, the homeowner always pays the same amount when they make their monthly mortgage payment.
When cash is needed for large or significant purchases, such as college tuition for the kids or home renovations, a refinance can work well. The cash-out refinance is what is done by many homeowners. A lump sum is received when the refinance is complete. Part of this money is used to pay off any existing mortgage, and the remaining money is the homeowner's to spend as they wish or need to.
Reasons Not To Refinance
Believe it or not, there are times when refinancing may not be a good idea. If you already are getting a good rate on your mortgage, then refinancing will only end up costing you more money.
The same is true if your credit score has dropped. What adds to this is the fact that the recent foreclosure crisis has made it more difficult and more expensive to refinance. Higher risk borrowers, such as those with low credit scores will pay more to refinance than those homeowners in good standing.
If you have almost paid your mortgage off, then refinancing will make no sense. In this case, doing so will only serve to restart your mortgage, putting you back to square one with your repayments. Instead, refinancing to a mortgage with a shorter term may make more sense.
If you find that your home's value has gone down over time, refinancing won't be a good idea, especially if your home's equity has been drastically reduced as well. However, a government program like HARP may help you if your loan was serviced or is owned by Freddie Mac or Fannie Mae.
When done at the right time and for the right reasons, refinancing your home can save you a lot of money. But take the time to ensure this is the case before you choose to refinance, because it could be too late to change anything once the papers have been signed.
Understanding home mortgage refinance terminology can really be of benefit while you are trying to answer various questions. For instance, does it make financial sense to refinance right now? If you get a better rate for the same duration you have left on your current loan, you will likely save a lot of money on the home over the long haul.
On the flipside, you may wish to extend the duration of the mortgage in order to pay lesser monthly premiums and have more liquid cash in your budget each month. Most importantly, you can now feel more confident that you can keep your home and avoid foreclosure because your actions to refinance home mortgage ended up securing you a better set of terms.
Article Posted In: Useful Articles Understanding the Refinance Process