If you're looking for a way mortgage refinancing cut expenses, (and who isn't!) a mortgage refinance may help to do just that. If you're like most people, a good portion of your income goes toward your mortgage payment. Refinancing a mortgage in effect creates an entirely new loan. You can choose to stay with your current lender, or you can select a new one. Once you've signed mortgage refinancing papers, the new loan pays off the previous mortgage. Refinancing will probably reduce your monthly payment and perhaps you'll get a lower interest rate. It's a good way to lower your monthly expenses, and put more cash back in your pocket, where it belongs. Here, we'll discuss some of the advantages and disadvantages of refinancing a mortgage.
Most people refinance simply to save money. If you can lower your loan's interest rate by refinancing, you may be able to save quite a bit over the duration of the new mortgage. If the amount that you save is greater than the amount you'll pay in closing costs, then a refinance could make sense. Your loan's interest rate can be improved by taking advantage of new lower lending rates, or by improving your credit standing.
A lot of consumers use mortgage refinancing to change their loan from an adjustable-rate mortgage (ARM) to a more easily predictable fixed-rate mortgage. The obvious benefit is that you'll avoid the uncertainty of the ARM loan when it reaches that dreaded adjustment period. In quite a few instances, it's possible to use this along with the concept we just discussed, making the loan's interest rate even lower.
Some also choose to refinance in order to increase the term of the mortgage. These people may want to extend the life of the loan so that they pay less each month. But, this plan will also cost more in the long run, in the form of more interest. Conversely, a shorter-term mortgage comes with less interest, but higher monthly payments.
This wouldn't be a well-rounded discussion without going over some of the drawbacks of mortgage refinancing, and here, we'll do just that.
Refinancing may not be such a good idea if the homeowner has substandard credit. Those with poor credit may not be able to refinance an adjustable-rate mortgage, or a loan that comes with a balloon payment. Creative financing may have gotten them into a home, but now they have the hurdle of a bad credit history to get over. According to the Federal Reserve chairman, Ben Bernanke, about 25% of all mortgages are adjustable-rate, and 10% of those mortgages will have their interest rates adjusted this year. Bernanke also said that lower-income borrowers and those with bad credit are a cause for concern, with more and more people going into default on their home loans.
Another drawback to a mortgage refinance is the costs and fees involved, which often add up to thousands of dollars. Some lenders even require a home appraisal as a condition for the loan, which can also be pricey. Closing costs and filing fees will drive the price up even further.A mortgage loan's downfall is when the refinance ends up costing more than it's saving. If closing costs are higher than the amount that will be saved over the life of the new loan, then refinancing may not be advisable.
Beware of the no-cost refinance option. Lenders are able to offer these, because the interest rate is usually higher than it would be if the buyer had paid the closing costs and other fees themselves. It may be worth it to lower the interest rate by a half a percentage point or so, but be sure to read all the fine print and make sure that you are really getting a no-cost deal.
A common type of mortgage loan, the "cash out" option, is now much tougher to get. Cash out loans are those that pay off the existing mortgage, and leave some extra money for college tuition, home improvement, or a vacation. The Federal Housing Administration (FHA) has tightened its lending standards. Where a homeowner with 5% equity in their home could once easily get a loan, now they'd have to have at least 15% equity to even have a chance.
Before applying for a mortgage refinance loan, get in touch with at least three lenders, and ask them for a free quote or "good faith" estimate. Do your homework, by comparing the terms and conditions of each offer, and choose the one that suits your situation best. If you feel like you're in over your head, consult with a mortgage professional, who'll help you decide if refinancing is right for you.
For help with debt, visit the Debt Help website.
Keep up to speed about the latest interest rate news at the LIBOR website.
ไม่มีความคิดเห็น:
แสดงความคิดเห็น