As interest rates drop to record lows, you hear about refinancing your
mortgage more and more. Maybe you've even talked to friend or family
who have refinanced, and are now enjoying lower monthly payments.
Refinancing your mortgage simply means you're taking out a new loan
with different terms. That new loan will pay off your old mortgage loan,
and because you now have new terms - which are usually much more
favorable than your old mortgage terms - you're likely to have lower
monthly mortgage payments.
Most home owners refinance their mortgage because it will give them
lower interest rates and lower monthly payments. Another good reason
to refinance your mortgage though, is that it gives you the opportunity to
change the type of mortgage loan you have.
If your credit rating is much better now than it was when you first got your
mortgage, that's another great reason to refinance. The better credit
rating can often help you get better terms with the mortgage refinance.
Refinancing also allows you to build equity in your home faster, and it
allows you to take advantage of equity you've already built up as well.
There are several things to consider before refinancing your mortgage
though, so let's look at a few of those.
Lower Interest Rates - If you want to refinance to take advantage of
lower interest rates, you'll want to first consider how much longer you
plan to continue living in your home. If you expect to stay there for at least
several more years, then you'll want to weigh the savings in interest
against the cost of refinancing the mortgage. If however, you expect to
move to another home soon, the costs of refinancing might outweigh
the interest reduction benefits.
Building Equity - If you're looking at refinancing your mortgage so that
you can build equity in the home faster, you might want to also consider
changing your loan type at the same time. If you're able to afford higher
monthly payments for instance, the faster way to build equity in your
home would be to refinance it on a 10 or 15 year mortgage term instead
of the standard 30 years.
Change Your Loan Type - Changing your loan type might be an
excellent reason to refinance, particularly if you started out with an
Adjustable rate mortgage. ARMs tend to have lower interest rates than
fixed mortgages do in the beginning, but with interest rates now at
record lows, you might be better off changing to a fixed rate mortgage
instead of holding on to the ARM.
Changes in Credit Status - This is especially useful to anyone who
started out with a sub prime mortgage because their credit was
tarnished. Most likely you have a much higher interest rate because of
these credit problems. It's not uncommon though, for your credit to have
improved since you first got that mortgage. So refinancing is an
excellent way to take advantage of that. The improvements in your credit
rating can drastically lower your interest rates and your mortgage
payments too.
The steps involved with refinancing your mortgage are similar to those
you took when you first took out the mortgage initially. You'll need to fill
out loan paperwork, and your lender will take a close look at your credit
history, employment stability, income and debt. They'll of course also
asses the value of your home, as well as how much equity you currently
have.
There are fees involved with refinancing your mortgage too. These
include all the general mortgage fees such as closing costs, application
fees, title insurance, appraisal costs, points, penalties and so on. Be
sure to discuss these details in full with your chosen lender before
moving forward with your mortgage refinancing plans.
|
|