Mortgage Refinancing And The Homeowner
02/10/09
Mortgage refinancing is a process that involves applying for a new loan in order to take the place of your current mortgage. Mortgage refinancing can be of great benefit in many situations.
Most commonly, people refinance their mortgage to take advantage of a lower interest rate, allowing them to save money over the life of the loan. Keep in mind, however, that there are usually lender fees and other costs associated with originating the new loan. If you do apply for this type of mortgage refinancing, make sure that the savings from refinancing will outweigh the costs of the transaction. The time that you plan to remain in your home is important to consider, as well. Selling your home before you break even on the refinance will end up costing you more money than if you never refinanced your first mortgage.
Another situation wherein refinancing is a good idea is when the interest rate on an adjustable rate mortgage or ARM increases. If you think mortgage rates will continue to increase, replacing your adjustable rate with a new fixed rate mortgage will keep you from paying higher interest costs when the rates go up. Conversely, if you anticipate a decrease in rates in the future, applying for a new adjustable rate mortgage may be a better idea.
Homeowners who find they are unable to make their current mortgage payments may opt for mortgage refinancing as a way to extend the term of the loan and thereby lower their monthly mortgage payments. Keep in mind though that while this will help you out of a financial trouble spot, you will actually be paying more total interest for the duration of the loan. And again, if you are not able to get a lower interest rate on your new mortgage loan, the time it would take to cover the cost of the upfront closing costs could be longer than you plan on staying in the home.
When applying for mortgage refinancing, you should consider factors such as how much saving you can expect each month, as well as what refinancing will actually cost you. To determine if refinancing is really an ideal course of action to take, multiply the amount that you will save each month with the number of months that intend to live in your home. After that, deduct the total costs of the various fees that you will incur with the new loan. If the result comes out less than zero, it means that you will actually be losing money with refinancing. If you go for refinancing, you will be in a better position to either break even or save money if you live in your home for a longer period of time. Mortgage refinancing is still a far better option even if the rates on the new loan are only slightly lower than what you are paying now.
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