A mortgage refinance is used very often as a savings tool by homeowners. By definition, a refinance is trading in an existing mortgage for a newer mortgage that offers better terms.
When mortgage rates fall, many homeowners will rush to refinance, although not all of these transactions will make sense or produce a savings. To benefit from a refinance, a homeowner should have a clear goal in mind when considering the top 6 reasons for refinancing:
1. Lower the interest rate – When interest rates are lower than the rate on the existing loan, refinancing will reduce the monthly mortgage payments. While this is a direct way to save money each month, homeowners must take into account that if they return to the original term, such as a 30 year mortgage, the amount of time for the mortgage to be paid off will be extended.
2. Obtain a shorter term – Refinancing to a shorter term when rates are low is a feasible option for many homeowners. In many cases, the interest rate is lower than the original rate which, even with a shorter term, will calculate to a mortgage payment that is either the same or lower than the original payment. In this case, the length of the loan is shortened and the overall amount of interest paid on the loan is greatly reduced.
3. Combining 1st and 2nd lien – Many homeowners have a second mortgage or equity loan on their The offer allows Amaya an unspecified cut from the overall revenue produced by Caesars online casino . home which is usually at a higher rate than the
1st lien mortgage. When rates are low, refinancing and combining the 1st mortgage and the 2nd mortgage can result in one lower australian online casinos monthly mortgage payment. Being able to do so at a shorter term will produce even more savings over the life of the new loan.
4. Debt consolidation – Many homeowners will use a refinance for debt consolidation. Combining other debt, such as credit cards, into one loan eliminates several debt payments each month, as well as, the higher interest rates that are normally associated with such debt. In most cases, the monthly mortgage payment with a refinance will save money each month. However, homeowners must be aware that when using debt consolidation, these debts are now part of the mortgage and will usually be paid for a longer period of time than the original revolving debt. Savings are usually realized when there is substantial amount of debt being consolidated and when only minimum monthly payments were being made on blixum that debt.
5. Eliminate PMI – PMI is private mortgage insurance that a homeowner must carry if the equity in the home is less than 20% when obtaining a mortgage. If home prices are increasing in the surrounding area, homeowners may refinance in order to eliminate PMI. Although there are other steps that can be taken to eliminate PMI, refinancing is a good idea if rates are lower than the original mortgage and the refinance is taken for a shorter period of time.
6. Moving to a stable product – Some homeowners will use an adjustable rate mortgage when purchasing a home in order to keep the monthly mortgage payments as low as possible. When interest rates are low, it is a good idea to refinance to a fixed rate mortgage which is a stable product that offers the same rate and monthly mortgage payment for the entire term of the loan. This eliminates the uncertainty involved of not knowing what the mortgage payment will be if rates increase and the ARM is set to adjust.
Traditional refinances involve the same qualifying and approval as the original mortgage. For this reason, homeowners should have their credit in order and their documentation ready when deciding to pursue this course. As a financial decision, refinancing should be done when it is advantageous to the homeowner, not just because rates have fallen. Each refinance will cost the homeowner money in closing costs which, if done too many times, will eliminate any potential savings or financial benefit.
Bio: Rosemary has been writing since 2010 for freerateupdate.com, a company that matches consumers with banks and lenders offering low mortgage rates. Previous to her writing career, Rosemary spent 13 years working hands-on in the mortgage industry as a mortgage loan analyst, mortgage processor, property manager, and a mortgage underwriter.