Refinancing Your Mortgage Can Really Save
You Money
Refinancing a mortgage is simply taking out
a new mortgage. It means paying off one or more old debts by getting a
new loan. Sometimes, refinancing your mortgage can really save you money.
You may be able to pay less interest, lower your monthly payment, or convert
from a 30-year loan to a 15-year loan and build your equity faster. But
be sure that refinancing is right for you.
1. Refinancing can be a good idea
for you if you:
- want to get out of a high
interest rate loan to take advantage of lower rates. This is a good idea
only if you intend to stay in the house long enough to make the additional
fees worthwhile.
- have an adjustable-rate
mortgage and want a fixed-rate loan to have the certainty of knowing exactly
what the mortgage payment will be for the life of the loan.
- want to convert to an adjustable-rate
mortgage with a lower interest rate or more protective features.
- want to build up equity
more quickly by converting to a loan with a shorter term.
- want to draw on the equity
built up in your house to get cash for a major purchase or for your children's
education.
2. Some situations where refinancing
your mortgage can really save you money:
- refinancing your higher
interest rate unsecured loans with lower interest rate unsecured loans
if the terms of the loans are comparable and the new rate is lower than
the existing rate.
- refinancing your secured
debts (such as your mortgage or car loan) if the new loan is for the same
length of time left on your old loan (or shorter), and the interest rate
on the new loan is substantially lower than the interest rate on your existing
loan.
- refinancing your home to
pay-off expensive car loans or credit cards provided you re not in financial
difficulty and not at risk of losing your home.
Mortgage refinancing can be worthwhile,
but it does not make good financial sense for every homeowner. A general
role of thumb is that refinancing becomes worth your while if the current
interest rate on your mortgage is at least 2 percentage points higher than
the prevailing market rate. This figure is generally accepted as the safe
margin when balancing the costs of refinancing a mortgage against the savings.
Sometimes, refinancing is an appropriate
way to resolve financial problems. In some situations, however,
refinancing can make existing financial problems worse. If you decide that
refinancing is not worth the costs, ask your lender whether you may be
able to obtain all or some of the new terms you want by agreeing to a modification
of your existing loan instead of a refinancing.
Author-Bio: Copyright © 2005. Chileshe
Mwape writes for the Mortgage Lender Guide at: http://www.lending-guide.org/
which offers informative articles about mortgages and loans.
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