Mortgage Refinance Information: Lower
Your Mortgage Payments
MySpendingPlan.com Editorial Staff
If you are one of those lucky
homeowners who took out their home mortgage when interest rates were at
their historical low, you don’t need to worry about mortgage refinancing
yet. However, if you’re like many homeowners who are paying higher
interest rates on their Adjustable Rate Mortgages (ARM) than what is
available currently, or if your ARM is getting to the point where the
fixed period is soon ending and the rate will float (which means
increase these days!), you may want to consider a mortgage refinance. Explore the mortgage refinance information below to learn more.
A mortgage refinance loan is
one where you take out a new mortgage loan to pay off your old mortgage
so that you can get a loan at better terms. By refinancing your
mortgage loan, it is possible to get lower interest rates, thereby
lowering your monthly mortgage payments. Even though rising mortgage
interest rates are a big concern these days, your credit score may have
improved or your equity in the home may have increased (due to rise in
value, principal you have been paying down, or both). This could help
you get a better rate. You could even refinance your mortgage so as to
pay off the loan quicker and build additional equity in your home.
Things to consider when
exploring mortgage refinancing:
- Will the next interest
rate adjustment on your ARM cause a major increase in your monthly
- Are you paying interest
at a rate that is more than 1.5% to 2% higher than the current
- Has your FICO credit
score increased since you first took out the mortgage?
- Do you understand the
full cost of mortgage refinance?
Know The Costs of Mortgage
Mortgage refinancing involves
many additional costs such as loan processing fee, early prepayment
charges (for the previous mortgage loan), title search fees (to confirm
ownership of the home), appraisal fee, mortgage insurance, closing
costs, inspection costs and points. Read the fine print and demand
details from the lender or mortgage broker!
Points refer to a percentage
of the loan amount (1 point = 1%) that the lender may tack on so that
you can get the lowest interest rates possible. Most mortgage refinance
companies charge anywhere between 0 and 5 points to refinance your
mortgage. If you do not want to pay the points upfront, you may have to
bear higher interest rates on the refinance loan, which may effectively
defeat the entire purpose for the refinancing.
Therefore, only after you have
calculated the total cost of mortgage refinancing and evaluated that the
new home loan (mortgage refinance loan) will indeed save you money,
should you go for refinancing.
When is Mortgage
Refinancing The Right Choice?
- Interest rates are lower
now than when you originally took out the mortgage.
- If you have an ARM
(adjustable rate mortgage) in which the initial fixed interest rate
is low and then gets higher as the term goes on, you should
refinance before the initial period is over. This way, you get the
benefits of low interest rates in the beginning of the ARM and can
take advantage of lower interest rates (fixed for the rest of your
loan) with the new fixed rate refinance mortgage loan.
- If you have an ARM and
are tired of having to adjust your monthly mortgage payments every
few years and want the stability of fixed monthly payments.
- If you want a mortgage
loan with a shorter term so that it can be paid off earlier and you
can build home equity that much faster.
- If you wish to “draw
upon” the built up equity in your home and use that money for other
- Your credit score has
improved enough that you may get a better interest rate.
On the whole, mortgage
refinancing does seem to be a good option in today’s market scenario. Make sure you account for the costs we discussed when making your
decision. With interest rates on the way up, you can lock in lower
interest rates a long time by opting for mortgage refinance. In
addition to this mortgage refinance information, you can also use
refinance calculators to figure out if mortgage refinancing is the right
option for you.