Refinancing a existing mortgage can take
advantage of the lowest available interest rates and save on
monthly mortgage
costs.
This can be reason enough to refinance;
there are other reasons why to refinance. Below are some of the
other ways refinancing can also benefit you...
Reduce Interest Cost
Take advantage of lower
rates
Interest rates are now at a 30 year low, if current
interest rates have dropped since you secured your mortgage, it
may be able to get a new mortgage with a lower interest rate.
Refinancing would then reduce the interest costs and possibly the
monthly payment costs.
Get a shorter term
loan
With a new mortgage and a shorter term, it can
sometimes reduce interest costs. By simply reducing the term of
the loan, would
typically save thousands in interest costs.
Get a new
ARM
Having an adjustable rate mortgage ( ARM),
and it has adjusted up,
maybe able to save money by refinancing with another
adjustable rate mortgage.
Since adjustable rate mortgage usually have
a low interest rate until the first adjustment, it maybe able to
reduce the interest rate for that first period.
Reduce Monthly Payments
Extend
the repayment period
By extending the term of the existing
mortgage, may reduce the monthly
payments.
Example, with 25 years remaining on the
current mortgage, it may be able to reduce the monthly loan
payments by replacing your existing loan with a 30-year mortgage.
Increasing the term of the mortgage will usually result in a
higher total of payments over the life of the loan.
The remaining balance of your loan will then
be repaid over 30 years rather than 25 years. The question is
whether the lower monthly payments are worth delaying completely
paying off the mortgage.
Switching from a fixed rate to an
ARM
It may also be able to reduce the monthly
mortgage payments, if
the fixed rate
mortgage, by converting to an adjustable rate mortgage (ARM).
Lower mortgage payments are the main benefit
of an Adjustable Rate Mortgage as long as interest rates stay the
same or go down. However, if interest rates go up, the monthly
payments will increase after the initial period. They may even go
higher than the payments on the original fixed rate mortgage.
Reduce
Your Risk
While adjustable rate mortgages have the
advantage of lower initial loan payments, they also have more
risk, since the mortgage payments will increase if interest rates
go up.
Adjustable rate to a fixed
rate
Refinancing a adjustable rate mortgages into
a fixed rate mortgage will fix monthly mortgage payments. No
matter how interest rates change.
Payoff
Mortgage Faster
By replacing the mortgage with one that has
a shorter term (30-year mortgage to a 15-year mortgage), can pay
off the mortgage quicker. This would allow the mortgage to be paid
off earlier and reduce the total costs, but this will
increase monthly
payments.
Another
option
The same thing can be achieved with a 30 year loan by
increasing the payments
every month by a small amount or making
repayment.
This pays off the mortgage quicker. but does
not incur the expense of refinancing, and does not lock the mortgage into the
higher monthly payments.
Lost job? With a 15-year mortgage there
maybe no flexibility. If the mortgage had to be voluntarily
increased the payments on your 30-year loan, you could drop back
to the minimum payments anytime
wanted.
.
There is a need to be careful of not paying
so much extra each month that a prepayment penalty, incurs, if
your loan has one.
The advantage of a shorter term
mortgages
Many people prefer
the "forced savings" aspect of a 15-year loan, and for them it can
make sense.
Home's
Equity To Borrow More
Pay off your credit
cards
Using the equity borrowed to pay off credit
card debt knowing that the interest rate on a home mortgage is
usually lower than the interest rates charged by credit card
companies. Also, the interest on a mortgage is usually tax
deductible, while the interest on credit cards are not.
Home equity loan vs.
refinance
Two ways to use a home’s equity to borrow
money. Either refinancing the existing mortgage for a larger
amount than the mortgage with the remaining balance or by taking a
home equity loan.
