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why someone should look into refinancing. The first reason is when they initially closed on there first mortgage loan they where stuck with a higher interest rate. By refinancing there first mortgage it takes the same amount of owed but has a lower interest rate, which means it generally cuts your monthly payments and it saves you thousands of dollars in interest. This is the most common type of refinancing. Another reason for refinancing your current mortgage would be to do a cash-out refinance. This is done occasionally when refinancing a first mortgage, a borrower wants to "cash out" some of the equity that has been built into the loan. Under specific conditions, established by the lender, a borrower can actually receive a check for an amount of money that meets those conditions. Cashing-Out is not normally limited to any type of loan program, it can be done with most of the described programs.
Here Are Some Things To Consider Before You Refinance:
- How long do you plan to stay in the home?
The average length of stay in a home is a little under 10 years. Before refinancing you need to ask yourself if you are planning on owning your home very much longer? The money you save on your monthly payment may not be sufficent to cover the fees associated with refinancing your mortgage. If you are staying more than three years in your home and can obtain a rate reduction of more than 1.5% it is most likely in your best interest to refinance at today's rates. If you are unsure if you would benefit from refinancing your mortgage be sure to use our Mortgage Refinancing Calculator.
- Do you have the money for fees that are associated with refinancing?
As a general rule, when you refinance your mortgage you can estimate the refinancing fees by taking the closing costs fees that you paid when you closed on the first mortgage. Most generally these fees can be between $2000 and $4000. Some companies run specials and will waive some or even all of the closing cost fees. That is why it is important to make sure that you plan on staying in your home at least until the break even date before even considering to refinance your mortgage.
- What is your current interest rate vs. the rate you plan on refinancing your mortgage?
Staying informed of the interest rates is very important. Although this is the only thing to consider when choosing to refinance or not, it is important to find a rate that is at least 2% lower than the rate you currently have. Most sources say that it takes at least three years and an interest rate that is 2% lower than your first mortgage to realize fully the savings from a lower interest rate, given the costs of the refinancing. Be sure to use our Mortgage Refinancing Calculator.
Being educated and staying informed of interest rates is key to getting the lowest rate when refinancing your mortgage and saving you thousands of dollars in interest over the life of the mortgage. Make sure that you shop around with other lenders when considering refinancing then challenge your lender to beat the best deal that you have found. By doing this your lender may be able to offer you the same or even better rate and when you are a returning customer sometimes some of the refinancing fees can be waived.
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