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MORTGAGE REFINANCING
Mortgage refinancing is an attractive option if interest rates have fallen quite a bit since your home purchase. Refinancing a mortgage reduces the amount of total interest that you will pay, and can dramatically shorten the life of a loan. Mortgage refinancing does not make sense all of the time. It is important to understand what is involved in refinancing a mortgage, so that you can make an educated decision about your situation.
Mortgage
Refinancing is Not Free
Refinancing
you mortgage involves writing a new mortgage. Along
with that come all of the costs associated. This is
where it is important to run some numbers. Depending
on how long you plan on staying in the house, and how
much you can lower your interest rate, you may find
that you save no money, or actually lose money on a
refinance.
If you plan on selling the home within five years or so, you need to compare the amount of money that you will save on interest with the amount of money that you will spend on closing costs. If they are close, you may want to hold off on the refinance.
If
You Want Extra Money, There Are Other Ways to Get It
Many
people roll existing debt into the mortgage refinance.
While this is perfectly acceptable, as long as the home
appraises for more than you are borrowing, the lender
will not mind, it rarely makes sense. For example, your
stove quits working. You decide to replace your other
kitchen appliances at the same time. You tack $15,000
onto the amount you owe on your home. You have paid
enough on the principal, and the house has appreciated
enough that the lender does not blink an eye. However,
say that you have twenty more years to pay on the mortgage,
do you really want to pay interest on kitchen appliances
that you do not even have anymore?
The equity in your home is extremely valuable. You can access it other ways than through refinancing your mortgage. In a situation such as the one described above, you could open a home equity line of credit, write a check at the appliance store, and pay off the appliances over the course of the next three years.
The
Quoted Rate May Not Be Your Rate
You probably realized this when you bought your home
initially, but it bears repeating. The mortgage rate
that gets quoted on television, in the newspaper, and
in advertisements, is not necessarily the rate that
you will be offered. That rate is reserved for the top
customers, those with higher incomes, low debt to income
ratios, and excellent credit scores. You may fall into
this category, many people do, but many others do not.
Before you commit to a refinance
of your mortgage, it is important to know what your
mortgage rate will be.
