Mortgage Refinancing At A Glance
Posted 04/06/09
Mortgage refinancing is a process that involves applying for a new loan in order to take the place of your current mortgage. Mortgage refinancing can be of great benefit in many situations.Most commonly, people refinance their mortgage to take advantage of a lower interest rate, allowing them to save money over the life of the loan. Keep in mind, however, that there are usually lender fees and other costs associated with originating the new loan. You will want to make sure therefore that you will actually be saving money from the new loan. The time that you plan to remain in your home is important to consider, as well. If you decide to sell your home before you have gone through the refinancing period, you will spend more money than if you had never gone for refinancing in the first place.
Another common scenario is when the homeowner has an adjustable rate mortgage (ARM) and the interest rate on that mortgage "re sets" to a higher rate. If you think mortgage rates will continue to increase, replacing your adjustable rate with a new fixed rate mortgage will keep you from paying higher interest costs when the rates go up. Conversely, if you anticipate a decrease in rates in the future, applying for a new adjustable rate mortgage may be a better idea.
Homeowners who find they are unable to make their current mortgage payments may opt for mortgage refinancing as a way to extend the term of the loan and thereby lower their monthly mortgage payments. Although this can help you get through a difficult financial period, you will end up paying more in interest over the course of the loan. In addition, if the interest rates on your new mortgage loan is higher, you could end up paying the loan off longer than you intend on staying on in the home.
When applying for mortgage refinancing, you should consider factors such as how much saving you can expect each month, as well as what refinancing will actually cost you. To determine if refinancing is really an ideal course of action to take, multiply the amount that you will save each month with the number of months that intend to live in your home. After that, deduct the total costs of the various fees that you will incur with the new loan. If the result comes out less than zero, it means that you will actually be losing money with refinancing. If you go for refinancing, you will be in a better position to either break even or save money if you live in your home for a longer period of time. Mortgage refinancing is still a far better option even if the rates on the new loan are only slightly lower than what you are paying now.