REFINANCING ON YOUR HOME LOAN
Questions answered by Keith Wimberly at Louisiana Mortgage
Q: Why should someone consider refinancing his or her home loan?
A:The common reasons to refinance are to lower your payment, lower your interest rate, consolidate debt, cash out on equity, divorce settlements and converting an ARM to a fixed rate. When someone refinances to lower their payment they usually end up with a lower rate and longer term, but in some instances, refinancing to a shorter term will result in a lower payment. Many refinances are done with the purpose of consolidating debts which might include paying off multiple mortgages, credit cards, installment loans, student loans, etc. A customer that chooses this option has now lowered their total monthly debt outflow while lowering their interest rate. I have personally seen this positively affect several families since it then results in a more manageable debt payment. Some people choose to get cash out when they refinance for many different reasons including home improvements, school, savings, vacations or to purchase investment properties. Many mortgages are unfortunately taken out of necessity since divorcees may be forced to take their ex-spouse off the current loan or because they have an adjustable rate mortgage (ARM) that is going into an adjustment period.
Q: Who should and when is a good time to consider refinancing?
A:Anyone that would save money or needs to refi out of necessity should consider refinancing. For instance, someone who has experienced a decrease in income, a new car loan, or has children in school should consider a refinance. The benefit of refinancing is not only about your rate but also about consolidating your monthly debt, minimizing the total interest paid, and lowering your total payments. The old rule of thumb for a refi of lowering your rate by 2% or more is inaccurate. There are multiple factors to consider, but as a general rule, the larger the balance, the more it makes sense to lower your rate and in many instances, a drop of .5% can make a big difference. For example, if your rate decreases by 1% on a 200,000 dollar home, the savings would amount to 2,000 dollars in the first year and if your closing costs were 3,000 dollars you would have those paid off from lowering your interest rate by the second year. It is also a good time to refi when you know that you will be living in a home for a longer period of time.
Q: What kind of questions should a homeowner, who is thinking about refinancing, ask him or herself?
A:A homeowner should consider everything above and analyze what their needs are for the short-term and long-term. For example, how long they will be in their current home and how much they will save. It’s best to contact a local mortgage expert to discuss their debts and mortgage needs.
Q: Is it a good idea for a homeowner to look at other lenders when looking for refinancing, or would they more than likely get the best rates from their current lender?
A:The majority of the time, their current lender will be someone behind a computer located in a different state. A local Mortgage Planner would be able to sit down with the homeowners, discuss what is most important to them and help them get the best deal.
Q: How should a homeowner know if refinancing is the best solution for them?
A:Meeting with someone locally, like Louisiana Mortgage, who truly cares about each homeowner and analyzing their situation by crunching numbers will help determine what is best for that particular homeowner.