Every year millions of people will refinance a home. Refinancing can be a way to lower your mortgage payment, and the interest rate that you are paying. However, there a several factors that must be considered before refinancing your home.
These factors include the interest rate on your current mortgage, the current market interest rate, how long you plan to live in your current home, and whether or not you need money for other things (such as home improvement, a new car, or paying off credit cards).
First, Consider the interest rate you are paying currently before refinancing. Compare it against the new interest rate you would get when refinancing to see how much you would save by mortgage refinancing. When you refinance, you may have to pay fees associated with the loan, unless your lender is doing a no fee loan. Before refinancing, be sure you have discussed the fee options with your loan officer.
It is important to know how much these fees are because you must take them into consideration throughout the life of the loan. These fees raise the effective interest rate of the loan, even if you have a "cashless" or "no upfront fee" loan. | It is for this reason you must have a good idea how long you will have the loan. The median length of stay in a home is 8.2 years. If you do not plan on owning your home for much longer, the lower payments associated with the refinancing may not cover the mortgage refinancing fees. If this is the case, the effective interest rate of your loan may be much higher - negating the benefits of the lower interest rate.
However, If you plan on staying in your home for a long period of time, refinancing could be an excellent way to reduce your monthly payments. Also, if you are planning on moving into a new home while retaining the old home as a rental property, refinancing the rental home may be a good idea. You can lower your monthly mortgage payment and in turn, increase your rental income.
If you are considering refinancing, also remember that there are a variety of different mortgages. If you plan on living in your home for a long period of time, you may want to consider the traditional fixed-rate 15- or 30-year loan. Another option is to choose an adjustable rate mortgage and consider refinancing again in a few years. By refinancing, you can choose the perfect mortgage for your needs, which may have changed since you first bought your home. A mortgage broker can be a useful tool to help find the most appropriate mortgage for your refinancing. |
