Considering A Mortgage Refinance ? Consider These Important Things
Consider several things before making a decision in refinancing a mortgage.
To benefit from a refinance, not to mention save money, you must stay in your home past the "break even period." To reach the "break even period" you must reach the length of time it takes for the lower interest rate to cover refinancing costs. The more you are able to lower the interest rate from the original mortgage rate, the more your "break even period" will be shortened. As the difference between the original rate and the refinanced rate increases, so too does the time it takes to reach the "break even period." The "break even period" is calculated by taking the difference between the original mortgage payment and the new mortgage payment. You then take that figure and divide it into the cost of refinancing the loan and the answer will equal the number of months to reach your "break-even period."
Just like when you applied for your original mortgage with the your current provider, shop around to find the best deal. Last on your list of providers to approach should be your current provider. Your current provider will have a reason to give you the best deal - he'll be trying to beat the competition. To keep your business from going to a competitor, your current provider will work harder for you. Among the advantages of refinancing with your current loan provider is that he can usually lower settlement costs, and in some instances can lower your rate without refinancing. You may not get the best deal or the best service going through your current loan provider because you are already a client. For this reason, you should approach your current loan provider last.
Think about refinancing first if you are debating whether to repay your loan in full or refinance. Repaying the loan and refinancing at a lower rate will result in the same earned percentage. Consider the benefits of refinancing if you don't plan on repaying your loan in full early.
Whether a refinance will lower costs is no longer a factor when the main objective is to take out cash. The issue becomes whether the cost of raising cash by using a cash-out refinance is higher or lower than raising the cash using a second mortgage. It's possible to secure a lower rate with a cash-out refinance, but this still may cost more than a second mortgage, even if the rate on the second mortgage is higher than the cash-out refinance rate. When considering a second mortgage, know that you are allowed to retain the lower interest rate from the current mortgage. Since everyone circumstances are different, don't make your decisions based on these generalities. Find out how they impact you and what you need to focus on.
by: Gen Wright
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