So You Want to Refinance Your Mortgage
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by: marciafreeman
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There are several reasons why mortgage refinancing is a smart financial move for the homeowner. If you have an adjustable rate mortgage that is due to reset to a higher rate in the near future, take a look into whether you qualify to refinance to a lower interest fixed rate mortgage. You could realize a savings of hundreds of dollars per month.
Provided you are well prepared, mortgage refinancing is an effective financial strategy for a number of other reasons. There is no sense to a mortgage refinancing if you plan to sell your home within the next few years. The closing costs associated with your new loan (which either come out of the mortgage proceeds or are paid upfront) usually take about two years to recoup out of your monthly savings before true monthly savings appear in your bottom line. These costs are the same as those you paid at the time you purchased your home and include application fees and fees for credit review, property appraisal, document preparation, bank attorneys, your attorneys if you choose to engage counsel for the transaction, and county clerk document filing and recording fees.
You may want to consider mortgage refinancing if you carry more than one mortgage on your property. Imagine how much lower your monthly mortgage payments would be if you were responsible for only one payment per month. The savings may astound you. Many homeowners consider mortgage refinancing to access the equity in their homes for purposes of paying down credit card debt or financing home improvements. Interest on a refinanced mortgage is tax deductible, whereas consumer debt interest is not.
Some homeowners refinance in order to pay their mortgage debt down quicker. Mortgage refinancing to one with a shorter term length results in higher monthly payments but quicker payoff and lower interest over the life of the loan. Conversely, if you refinance to a mortgage with a longer repayment term you will enjoy lower monthly payments but a higher aggregate amount of interest in the end.
Before you become too committed to mortgage refinancing, check your credit score. These days, lenders are more nervous about extending loans to homeowners with high balances on multiple consumer loans or credit card accounts. They may not want to take a risk on you. Be sure to let any potential lenders know upfront whether you intend to pay those balances off with the mortgage refinancing proceeds. That information could sway their decision in your favor.
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