Should You Refinance Your Mortgage?

Should You Refinance Your Mortgage?

The average U.S. homeowner refinances his or her mortgage every four years. Sometimes it’s to take advantage of lower interest rates, but there are many other reasons to refinance. Are any of them right for you? Find out by seeing if you can answer “yes” to one or more of the following questions.

Are interest rates rising?

If you have an adjustable rate mortgage (ARM) and expect interest rates to rise, you may want to switch to a fixed-­rate loan. By locking in the interest rate, you won’t have to worry about your payments climbing in the future. On the other hand, if rates are rising and you have a fixed-­rate mortgage, you’re in good shape. You may still have other reasons to refinance, but obtaining a lower rate probably isn’t one of them.

Is your monthly payment straining your budget?

You may want to consider refinancing to lower your monthly payment. Even if rates are the same as when you obtained your current mortgage, you may want to refinance to extend the term of your loan if you’re having difficulty meeting your monthly payments. For example, assume you have a $200,000 mortgage at 6 percent for 30 years and have been paying $1,200 a month for seven years. Refinancing to a new 30­year loan the same rate would lower your monthly payment to $1,075.

Is your ARM causing stress?

Perhaps you were attracted to an adjustable-­rate mortgage because the initial rate and payments were lower than a fixed-­rate loan. However, many ARMs are adjusted annually. That means if interest rates go up, so too will your monthly payments. If you aren’t comfortable with this variance and would prefer the peace of mind of a consistent payment, consider refinancing to a fixed-rate loan or to another ARM with a more favorable rate caps (limits on how much the interest rate can increase).

Has your credit rating improved?

When you applied for your mortgage, perhaps you had little credit history or maybe even a blemish or two on your borrowing record. Your credit score was a big factor when your lender determined the interest rate on your mortgage. If you had a low or mediocre score that has since improved, you may now be eligible for a better rate if you refinance.

Do you need to consolidate debt?

If you have built up considerable equity in your home, but you’re mired in other debt, consider cash out refinancing. That involves getting a new mortgage for a larger amount than you currently owe. For example, if your home is worth $285,000 and your outstanding principal is currently at $185,000, you have $100,000 in equity. By refinancing to a new mortgage with a principal of $215,000, you can, for example, free up $30,000 to pay down high­ interest credit cards or other debts. You’ll save money if your new mortgage has a lower rate than the other loans, and you’ll have the added convenience of only having to make a single monthly payment.

Do you need money for a major expense?

Cash-out refinancing isn’t just for consolidating debt. If you have available equity in your home, it may enable you to undertake some major home improvements, or to free up money for your children’s education. If you do plan on taking cash-out, it’s important to be realistic about your future goals. Remember that taking cash out will increase the principal you owe on your home. This may impact you when you go to sell your home.

Paying it off Faster

Are you planning to fatten your equity faster, and pay your mortgage loan off sooner? If this is your hope, the refinance can move you to a mortgage program with a short, like a 10, 15 or 20 year loan. Although your monthly payments will usually be increased, you will be paying less interest; so your equity will rise up faster. However, if you've had your current thirty year loan for a long time and the remaining balance is rather low, you could be able to do this without increasing your monthly mortgage payment — it's even possible to save!

Did you ever hear the old saying that “Don’t refinance unless you could drop the interest rate by 2 percentage points.”

in which if they refinance there current mortgage into a no-closing cost refinance mortgage and there payment goes down by what ever amount and they apply the savings monthly how they can shorten the life of the loan hence save huge on the interest paid our out over the life of the loan. One thing you have to remember is you have to discipline yourself to stick to the plan. Other wise just shorten the term of the mortgage for example go from a 30 year to a 25 year or shorter term that you are comfortable with.

To help you determine your options and the many benefits of refinancing, please try the following other great calculators

http://www.bainmortgage.com/scripts/MortgageRefinance.html

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