Home Refinancing-Making The Right Choice
Nov 7, 2009 Mortgage Lender
Homeowners it seems are forever on the lookout for ways to cut down on their bills. And home refinancing has become the method of choice for many. But be careful before you jump into any deal. There are times when refinancing can end up costing you more than you save on your monthly bills. Let’s begin by examining when a new loan makes sense.
Clearly the first thing to look at is your current mortgage. If you have an adjustable rate, a fixed rate loan at a low rate can normally save you money in the long run. Adjustable rate mortgages are good if you get your loan when rates are high, but in current rate environment they just don’t make sense. If you can lock in a low rate, you will clearly save money over the length of the loan. When rates go back up, and they always do, you’ll still have a great rate on your loan.
Something else to consider is if you have a pending balloon payment. Maybe it snuck up on you and you’re not prepared or simply don’t have the money to pay. Refinancing could be your only option. Also find out if the rate you’re paying now is higher than the current market rate. If it is, you should definitely look into refinancing. All it takes is one-quarter of one percent difference in the rate to make a huge difference on a 30 year mortgage.
But in all cases you should carefully look at the closing costs for refinancing. They can be pretty significant. Then figure out how long it will take you to recover that money with whatever you will be saving every month.
The reason this is so important is because people rarely stay in one house for the duration of their loan. If moving is something you might be doing in the near future, you’re simply giving away money. You should be reasonably sure you’ll be in your current house at least long enough to make up what you spend in closing costs.
Most newly refinanced loans will also come with pre-payment penalties. These can be quite costly, with an average cost of 2-5 years. If you want to pay off the loan early, you’re also stuck paying the penalties. And again, if you might move and need a new loan while paying off your old one, the penalties may apply. These penalties must be measured against your monthly savings.
Of course the most obvious thing to look at is your monthly payment. Many people choose a cash out option when refinancing. This means money in your pocket now, but it also means a higher balance on your loan. Even if your interest rate goes down, it is conceivable that your monthly payment will actually go up. The best situation is to get a rate significantly lower while using a cash out option. This means money now and lower payments, even with a higher balance.
The bottom line is that home refinancing can be extremely beneficial to your bank account, but it can also jeopardize your financial health if you make a deal under the wrong conditions or at the wrong time. Weigh out the fees, costs and potential penalties against your monthly savings. If you see this will work, then begin shopping for a lender. Don’t just take the first offer you get because there are a wide variety of terms and rates available. And be sure to get recommendations from friends and relatives as well. They’ve been through the process and can let you know if their lender is easy to work with.
Making the right choice can pay off for many years to come.
Were you aware that you can even refinance your trailer or upgrade your economic situation with a manufactured home refinance? Learn about these ideas and other house refinance information by visiting www.home-mortgage-refinancing-loan.com.
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