Pros And Cons Of Refinancing Your Mortgage
Holding on to a fixed mortgage in a regime of falling interest rates appears to be
imprudent and the option of refinance seems rational, however if you have not weighed all your options properly, you may actually end up with increased costs. Read on to know more.
Refinance loan is usually a new loan to pay off the existing loan.
When to go for Refinance?
Refinance is a very useful option in case you have entered into a fixed home loan with your lender and market rates now are beginning to fall. You can also seek refinance from mortgage lenders in case your existing lender is charging you higher rate than originally quoted.
In the event of your improved financial situation, it is prudent to reduce the term of your home loan to quickly pay off your loan and also reduce the overall interest payment. However, in case your existing mortgage lender is unwilling to reduce your tenure, you can look for refinance options.
However, while considering the option of refinance, one must bear the below factors in mind:
Closing and other costs to pay off your existing mortgage might be very high. Calculate all the costs of closing, compare them to the expected savings in case of refinance, also arrive at the breakeven point. After careful analysis of the costs, profit you can opt for refinance.
The main aim of refinance is to reduce your monthly installments and hence it is advisable to not opt for Adjustable Rate Mortgages (ARM). Usually ARMs tend to adjust to an increased rate of interest in a few years. Such movement will result in rise in your monthly payments.
Keep your equity in home intact. Even if you opt for a refinance, ensure you have sufficient equity as this makes reduction in interest rates and expected tenure certain.
Pin your attention to the new terms in the refinance mortgage. Ensure that you have reduced your rate of interest and other charges, term of the loan and your overall monthly installment.
Though refinancing option is extremely beneficial to save money on your home loans, it is equally important to analyze whether such option is worth it, considering the costs and other risks involved.
by: kellyprice1225
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