Benefits of the Latest Home Refinancing Boom
While experts debate whether or not economic factors are pushing us toward another refinancing boom, smart homeowners across the country already know about the important benefits of home refinancing. You may have refinanced several years ago and are interested in lowering your monthly payments now. Maybe the interest rate on your option ARM is due for a reset, and you're hiring a new mortgage will keep your payments affordable. Or, you might simply want to borrow against your home's equity – a process that is easily achievable during cash-out refinancing.
Whatever the impetus, there are a number of key issues to keep in mind when considering refinancing your current mortgage. Foremost should be the question of whether refinancing will actually save you money, or whether the associated points, fees, and other costs outweigh its financial benefits. Second is the issue of how long you intend to remain in your home. If you plan to move within 3-5 years, for example, refinancing may not be the best choice. Finally, it's important to remember that refinancing is not a miracle cure for debt or destructive spending habits. Maintain any mortgage requires careful planning and dedicated follow-through.
There are numerous answers to this question. For some, access to cash is an immediate concern, and home equity representations a financial financial investment that can tap into. For others, home refinancing provides an opportunity to improve the terms, rate, or payments required by the current mortgage.
This type of refinancing involves borrowing more than the amount owed on your original loan. The surplus is given to you in the form of a check, which you can use for virtually any purpose. For instance, you may want to pay off medical expenses or revolving credit card accounts, which usually have a higher annual percentage rate (APR) than mortgage loans. Some homeowners use cash-out refinancing to cover the cost of renovating their homes and prefer to have the cash in hand. Your monthly payments are based on the total amount of the new loan. Depending on your original mortgage, you could pay slightly more each month for this type of refinance.
Trading an ARM for a fixed rate
Another common reason for refinancing is to take advantage of lower rates during the boom and to avoid dealing with an adjustable-rate mortgage (ARM) that is scheduled to reset. To illustrate this point, imagine how substantially the rate on a $ 200,000 5/1 ARM could jump, once the initial fixed-rate period is over. If you did not refinance, your monthly payments post-adjustment could increase by over $ 300!
Lowering your monthly payments
It stands to reason: refinance at a lower interest rate, and your monthly payments will most likely decrease. Lower payments mean better cash flow and an opportunity to save or invest the surplus.
Improving your loan terms
While you'll probably pay more for a 30-year fixed rate, there are advantages to refinancing your ARM and improving your terms. Foremost is the stability of know exactly how much you'll pay each month of the life of the loan. Fixing your rate also provides a buffer, should unforeseen economic factors send interest rates skyward. If you feel uncertain about the future of rates but know you'll be in your home for more than 7 years, switching to a fixed-rate mortgage could be the smart move.
During the next refinancing boom, homeowners will be afforded a special opportunity to make a radical change in what is probably their largest investment: the home mortgage. As with any investment, researching your options and weighing the pros and cons are essential to making an informed decision.