Mortgage refinance can give you several financial advantages, which can pay off in the short term and in the long term. As a general rule, when you go through a mortgage refinance you pay off your first loan and re-sign a new loan.
One of the simplest benefits of a mortgage refinance is to get a lower interest rate. You can lower your interest rate as much as 3% or even 4%. This can lower your monthly payments drastically and free up cash each month for home repairs, other bills, savings vacations or other expenditures. With a lower rate after a mortgage refinance, you will also save money in interest over the term of the loan.
You can also go through a mortgage refinance to get cash out of your home. When you refinance, you will borrow more than the remaining balance on your old mortgage, which will use some of the equity you built up. But, because of the current lower rates, your monthly payment will not be adversely affected. You can then use the extra cash from the mortgage refinance to pay off other debts with higher interests, such as a car or credit cards, or you could build the new workshop out back you were dying to have.
Another benefit of doing a mortgage refinance is the ability to trade your adjustable-rate mortgage for a fixed-rate mortgage. Now the rates are low, most homeowners want to keep paying these low rates for the duration of their loan. A mortgage refinance to a fixed-rate mortgage will guarantee you will continue paying the same low interest rate for the rest of your loan. You will also have a predictable monthly payment.
Some homeowners decide to take advantage of a mortgage refinance and reduce their loan term. With lower interest rates, you can refinance down from 30 years to 15 years, and continue paying basically the same monthly payments, but own your home in half the time and end up paying significantly less interest over the term of the loan.
When you decide to do a mortgage refinance, talk to your lender about any prepayment penalties for paying off your current mortgage. Many lenders do not charge these costs, but look into it before you make the decision on your mortgage refinance.
Look at what you will save in a mortgage refinance. Check the rates and what it will save you in monthly payments, interest, closing costs and taxes. Decide how long you plan to stay in your home and if you will recoup your refinancing costs in the amount you save in monthly payments and interest.
Remember, when working through a mortgage refinance, you will still have to complete about the same basic steps as with your first mortgage. A mortgage refinance still requires applications, appraisals, credit reports, insurance, escrow fees and in some instances, refinancing fees and other closing costs. Ask about a no-cost mortgage refinance. Some institutions offer lower costs for refinancing or even waive these fees.
Look carefully at your options and your savings. Decide if you want to take advantage of a mortgage refinance and shop around for your best deal.
By D. Blair Thompson