Are you bogged down in debt? Are your monthly home mortgage payments rising each year and getting harder and harder to pay? If this situation sounds familiar, you may want to consider refinancing your mortgage.
With recent high interest rates and the turmoil in the market - many people came to believe that refinancing their home loan was simply not an option. When you refinance you're simply taking out a new loan to pay off the existing one so it only makes sense if you obtain a lower interest rate enabling you to save money.
Fortunately, though, interest rates for most borrowers have recently dropped. In addition, the government is also encouraging lenders to help people refinance bad loans - especially those with adjustable rate interest.
Usually, there are 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 refinance to obtain a fixed rate mortgage and avoid the higher payments.
Or, if you already have a fixed rate mortgage, it might pay you to refinance if you can lock in a lower interest rate.
It's not a good idea to refinance if you're experiencing a cash flow problem and simply want to lower the payments by extending the term of your loan. With an extended term you'll be paying more interest over the remaining years that you own the home.
The first thing to do is calculate the cost of refinancing. There are various fees involved 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.
A cash-out financing arrangement may make sense if you're disciplined on how you spend your extra money. A cash-out deal is when you refinance and borrow more than you owe. Pay off the existing mortgage and any excess money is yours to use however you wish such as paying off higher interest credit card debt.
If you make the decision to refinance, make sure you save enough to recover the cost. 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 probably will take at least that long to recoup the expenditures.
Use a refinancing loan calculator to determine if a new loan is feasible. Your lender will be happy to let you use theirs or you can access one on the Internet. They're easy to use, just plug in the pertinent loan information
Remember that your refinanced mortgage will be secured by a lien on your home. If for some reason you're unable to make payments the lender can foreclose and possibly sell your home to pay off the mortgage.
The decision to refinance should not be taken lightly. Examine each avenue thoroughly. Educate yourself on each step. Ask for advice. If your circumstance is right, it could lift you out of debt, lower your monthly mortgage payment and help make you a happy homeowner.
For many people, now is the time to take advantage of this great option, so you may want to look into it and see if it makes sense for you.