Refinancing your homes mortgage can be a smart tool for making the most of your money. However, that doesn’t means that refinancing is always a good idea. Depending on your homes current and past value, your personal goals and situation, and the specifics of your current loan, refinancing may or may not make sense.
Know Your Homes Value
In addition to knowing your homes assessed value, you need to know whether it is currently increasing or decreasing. While almost all real estate investments increase with time, there are specific situations when a homes value actually decreases. This can make refinancing a bad choice. Simply by calling a local realtor or mortgage lender you will be able to get an idea on the value of homes in your area.
Your Homes Place in Your Future
How long do you intend to stay in your home? In order for a refinancing of your homes mortgage to make sense, you need to stay in it long enough to pay off the points and closing costs associated with the refinancing. If you know you will be looking at other homes next year, this may not be the ideal time to refinance.
On the other hand, refinancing your homes mortgage could be beneficial if your goals are to reduce your debt, make home improvements or increase your homes value. Since a refinancing of your homes mortgage allows you to tap into the equity you’ve built over the years, using those funds for immediate needs or future investments can make sense. People often refinance a homes loan in order to help pay for retirement, college or medical needs.
Results of Refinancing Your Homes Mortgage
One of the biggest reasons that people refinance their homes is to take advantage of a lower interest rate and reduce monthly mortgage payments. Sometimes the advantages to this are glaringly obvious. For example, if you owe $100,000 on your homes mortgage on a 30-year conventional loan at 6.5% interest, then your monthly payment will be $632 per month. The ability to lower that interest rate by one full point to 5.5% would make your monthly payments only $567 a month. This lowers your homes monthly payment by $68. There are few situations when that scenario is not a good deal.
Questions are more likely to arise when the savings come in the form of a non-traditional loan like an ARM (adjustable rate mortgage) or a balloon loan. To determine which loan is best for your homes mortgage refinancing, understand these terms and work closely with a realtor or mortgage lender who can explain how these will affect you down the road. The basic rule of thumb is to take advantage of these loans for homes that carry fluctuating rates, or major changes in payment, only if you are certain of your ability to handle the increased payment. Final word- Refinancing your homes mortgage loan can be a great financial tool when done at the right time.
John Harris is a researcher and writer on applicable real estate topics such as economics, credit improvement tips, home selling advice and home buying preparations. For more information please visit Mortgage Lenders and Online Mortgage Calculator
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