Mortgage Refinancing — Finding the Best Refinance Rate
Refinancing refers to the practice of paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate). The most common reason that individuals decide to refinance is to lower their monthly mortgage payments. Other reasons to refinance include reducing the life of the mortgage, reducing the risk of an adjustable rate mortgage, using the equity of the home (this is also referred to as a 'cash out' loan), or to consolidate debts. If you are considering refinancing your mortgage, there are a number of factors you should consider. Find out whether your interest rates for refinancing will be lower than your current mortgage rates. Also determine whether you will be able to afford the closing costs and transaction fees, which can be as much as the fees you paid for your original mortgage. Ask your lender if they offer any special deals on refinancing. Calculate what your monthly payments will be after refinancing. Also determine how much you currently owe; consider the payoff amount on your mortgage and whether your lender includes any penalty for prepayment of your loan. When deciding whether to refinance, think about your reasons. Do you intend to use the funding for remodeling, debt consolidation, or a major purchase? If your expense is an unknown amount that may vary over a period of time, consider a home equity line of credit rather than a home equity loan. With a home equity line of credit, you can withdraw funding when you need it and choose an interest-only payment option.
If you choose to refinance your mortgage, you may be obligated to pay a significant amount of money to cover up-front costs and various fees. If you cannot afford to pay for these fees, it is sometimes possible to include certain costs in your new mortgage. When deciding whether to refinance, you may also consider how long it will take for you to recover the expense of refinancing. Refinancing costs are usually recovered in two or three years, so if you are close to paying off the original mortgage, or are not planning to remain in the house for much longer, you may be better off if you choose not to refinance. If your current loan is an adjustable rate mortgage, you might also consider what the current rates are for fixed rate mortgages. Another factor in deciding whether or not to refinance is your current income. If your income has increased significantly, you can afford to make larger monthly mortgage payments, thereby shortening the term of your loan.
Before making the decision to refinance, be sure to thoroughly consider your options. Compare lenders and refinancing plans to find the plan appropriate for you.