Why refinance may be a good choice for you!
Refinance to reduce the loan life. A 30-year long debt could put a lot of pressure on your mind. And refinancing could be the way to shorten the life of your mortgage by half. Lots of people are happy to discover that a 15-year refinancing loan is not much more costly than their regular 30-year mortgage. A mortgage calculator could help you determine an estimated new payment.
Let us take an example here, for the sake of clarity. Let’s say you have a 30-year mortgage with a 5% interest rate. If you can refinance to a 15-year loan, with 3.25% interest rate, the increase of payment will not be higher than $200. If you evaluate your finances and you see that such an increase fits into your budget without any problem, you have an encouraging perspective to refinance.
Refinance to switch from an adjustable-rate mortgage to a fixed-rate loan. Many people choose to switch from an ARM to a FRM in order to take advantage of the current low interest rates. Such a change would protect you against the rising rates that are expected in the coming years. The interest rate is low right now, but it will not stay like this forever. A fixed monthly rate also has the advantage of being easy to budget: you always know your expenses.
Refinance for a lower interest rate. The current low level of interest rates has convinced many people to refinance. It is a good time to compare the interest rate that you are paying on your current loan with the interest rates of the new loan. Tens of thousands of dollars could stay in your pocket if you take the time to investigate this option. You can either contact lenders online or work with your mortgage broker to see what you can do.
Refinance to get cash from the home equity. Refinancing your home to cash out home equity could appeal to lots of people. However, such a financial move should not be made on a whim or in order to pay for some exotic vacation. You should have a very firm grip of your finances and know for sure what you want to achieve. Good reasons for this financial choice include starting a business or making an investment.
Refinance for lower monthly expenses. The payment could be drastically reduced if you refinance your loan at a more convenient interest rate. By reducing the monthly payments, you can make savings or invest your money. The details of your particular situation should be carefully analyzed in order to determine whether refinancing to lower payments is a good solution for you. This is the safest thing to do given the fact that in most cases, this mortgage change will increase the life of the loan.
How can refinancing help you achieve goals?
There are serious questions you need to ask yourself before you refinance. Having a clear purpose for refinancing is essential: to lower the monthly payment, to get out of debt faster etc. If you plan to change your home in the near future, refinancing doesn’t make sense. Take a bit of time to evaluate your situation and see your goals clearly. Don’t forget that there will be costs and fees for closing one mortgage and changing it with another. And these fees could be thousands of dollars high. The costs of refinancing will not be recouped right away but in time.
The government has designed programs meant to support Americans refinance their homes even if the debt would be higher than the value of the property. The requirements of traditional refinancing have become a lot more flexible with the Home Affordable Refinance Program, known as HARP. According to MakingHomeAffordable.gov, in order to qualify for a refinance, your mortgage should meet the following requirements:
- The mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac.
- The mortgage must have been sold to Freddie Mac or Fannie Mae on or prior to May 31, 2009.
- The mortgage can’t have been refinanced under HARP previously, unless it is a Fannie Mae loan that was refinanced under HARP from March to May, 2009.
- The existing loan-to-value (LTV) ratio must exceed 80%.
- The borrower must be current on the loan at the time of the refinance, without payment problems, over the past 12 months.
Refinancing a mortgage is a complex and demanding process. The pros and cons of your situation need to be carefully analyzed so that the decision you make suits your case. If you do your homework well by researching and planning carefully, a mortgage refinance could be an excellent decision. Follow your best interest!