Home Mortgage Refinancing - should I refinance?
by Chileshe Mwape
Published on this site: October 13th, 2005 - See
more articles from this month
Why should I refinance and when does it pay to do so?
Refinancing can be worthwhile, but it does not make good
financial sense for everyone. A general role of thumb is that
refinancing becomes worth your while if the current interest
rate on your mortgage is at least 2 percentage points higher
than the prevailing market rate.
There are several reasons to refinance your home:
- To lower the interest rate on your mortgage, reducing
your monthly payments and overall cost;
- To reduce the term or length of your loan, doing so can
save you thousands of dollars in interest;
- To provide a means of consolidating your debt;
- To draw on the equity built up in the house to get cash
for a major purchase or for children's education;
- Have an adjustable-rate mortgage (ARM) and want a fixed-rate
loan to have the certainty of knowing exactly what the mortgage
payment will be for the life of the loan.
It is better to refinance if you can get an interest rate
at least two percentage points lower than what you are currently
paying. However, every situation is different. Some lenders
are offering reduced fees or no points. Asking yourself a
few questions may help you determine if you can save money:
- How much can I lower my current monthly payment?
- How much will I pay in refinancing costs?
- How much will I still owe on the house?
- How much am I currently paying each month?
- How much did I initially pay for the house?
There are other considerations, too, such as how long you
plan to stay in the house. Most sources say that it takes
at least three years to realize fully the savings from a lower
interest rate, given the costs of the refinancing. Itemize
all the expenses of the refinance and estimate your new monthly
payments. Answering these questions can help you to decide
if you should refinance.
Talk with mortgage lenders, real estate agents, attorneys,
and other advisors about lending practices, mortgage instruments,
and your own interests before you commit to any specific loan.
Chileshe Mwape writes for the Mortgage Lenders website
at http://banks.lending-guide.org/
and he's also a regular contributor to the Auto Loans website
at http://www.motor-car-loans.org.uk/
|
