When To Refinance A Home

| November 5, 2011

When To Refinance A Home

You might be wondering when to refinance a home. The right time depends on the situation. Here are some things to look at and consider.

How long

How long do you plan to stay at your current residence? Do you have any plans to move in the near future? If you plan to move within a year or so, it may not be worth it. However, there are exceptions to the rule. You may find yourself in dire financial straits. A much lower payment may help you out.

Lower interest

Many people take out a new mortgage for a lower interest rate. However, this may not always be the best case. If you are doing this for lower interest, you want a smaller monthly payment. This is the bottom line.

Remember, when you take out a new mortgage, there can be a lot of closing costs. Loan points can be considerable. Points are percentage points on your loan amount. On a $100,000 loan, this is $1,000. Two points is $2,000.

There are also many other costs, too. You will need a new appraisal. There will be things like title search fees and termite inspections. The total closing costs can add up. Some places may advertise no closing costs. This may only mean that you do not pay upfront. They may be added to the total loan amount. Always read the fine print very carefully.

Shorter term

When interest rates drop, you may be able to shorten the term of your loan. If you can go to a 15 year loan you will save a great deal of money. The only problem is the payment is higher. However, lower interest rates can mean lower payments. If you can refinance to a fifteen year loan, it is usually a good idea. This is assuming that you have many years to go on your 30 year loan.

ARM

ARM refers to adjustable rate mortgages. This can get people into trouble fast. Many people take out ARM mortgages. When interest rates climb, so does their house payment. This is the reason for many loan defaults, these days. If you can get away from an ARM loan with a lower payment, it may be best for you.

Balloon

Balloon mortgages can sometimes be a very good deal. It lets you have a very low payment for several years. If you currently have a balloon mortgage, you will eventually need to take out a new loan. Do not wait until the last minute to do so. Mortgages can have a way of dragging out. Make sure that you allow yourself plenty of time.

You may consider a balloon mortgage when refinancing your home. This may be a good thing, in some cases. Perhaps you expect to do better financially in a few years. In the meantime you can have a low house payment. This may give you the opportunity to pay off some important bills.

Summary

Do you know when to refinance a home? The answer depends on your situation. If you plan to live there for several years, it may be a good idea. Remember, the bottom line is not necessarily the interest rate. It is your actual monthly house payment amount. You may also be able to change from a 30 year to a 15 year loan. This is a big money saver. If you have an adjustable rate mortgage, you may need to refinance to keep your payment down. Balloon mortgages will require a new loan eventually.

Category: Home Loan

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