I guess you must have heard of this situation below: With mortgage rates currently at their lowest levels since 1955, many Americans are asking themselves if they should refinance. Most homeowners admit to having doubts about their mortgage when the statement arrives. Unfortunately, most people simply pay the bill without exploring how easy it could be to have a smarter mortgage and a lower payment. Now, do you ever wonder if you have the smartest mortgage for your situation?

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. Here are some disadvantages and advantages of refinancing your mortgage.

Disadvantages

• 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.

• The main aim of refinance is to reduce your monthly installments and hence it is advisable to not opt for Adjustable Rate Mortgages. 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.

• 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.

• 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.

Advantages

• 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.

• 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.

• Perhaps they have changed since you bought the home you’re in and you need a more flexible mortgage. You might like to explore the possibility of taking cash out of your equity to make home improvements. Maybe you have high-interest debts you’d like to clear up? With credit card interest rates at a 9-year high and mortgage rates at 50-year lows – it could be a great time for you to refinance to consolidate debt.

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