Should I Refinance My Mortgage
Loan Now?
by Brandon Cornett
You've probably heard a lot about
mortgage refinancing on the news
lately. In fact, if you're a homeowner
you've probably received a few offers
in the mail from lenders as well.
The reason you hear so much about
this topic lately has a lot to do
with the mortgage / foreclosure crisis
we are seeing right now. Many homeowners
are in situations similar to those
they have heard about on the news,
having an adjustable rate mortgage
set to adjust in the near future
... and facing a possible spike in
mortgage payments as a result. So,
these homeowners naturally look into
refinancing as a way to avoid such
payment hikes.
The question is -- when should you
refinance your mortgage loan, and
when should you avoid it? This question
is high on the list of many homeowners,
so I will do my best to shed some
light on the subject.
When Refinancing Makes Sense
There are some general
rules you can use to determine
whether or not
a refi makes sense for your situation.
Bear in mind, however, that these
are just general rules of thumb.
So don't make any financial decisions
based on these "rules" alone. Do
some further research into the subject
and seek the advice of a financial
professional.
With that being said, here's a basic
guide on when to refinance a home
loan, from a financial standpoint:
- Switching from an ARM to a
fixed rate -- This is a common
reason why homeowners pursue
a refi in the first place, especially
with all the negative press the
adjustable rate mortgage (ARM)
loan has been getting lately.
Eventually, an ARM will adjust
to a higher interest rate that
catches a lot of homeowners off
guard. So many people use refinancing
as a way to move to a more predictable
fixed-rate mortgage.
- Capitalizing on Lower Interest
Rates -- This is another
common reason why people refinance
their home loans. When the rates
are low, homeowners in certain
situations can refi to a lower
interest rate, and thus reduce
their overall monthly mortgage
payment.
The goal of both of these strategies
is the same ... to either (A) lower
the interest rate on the loan, or
(B) prevent the interest rate from
rising through a mortgage adjustment.
In both cases, the goal is to pay
less money each month on the mortgage
payment.
It's Not Always a Good Idea
Now is a good time to point out
that a mortgage refi is not always
a good idea. And I can illustrate
this through another rule of thumb:
If the money you pay to refinance
the loan (closing costs) exceeds
the amount of money you save over
the term of the new loan (lower interest
rates), then it doesn't make sense
to pursue it. After all, nobody wants
to pay more than they save in a financial
transaction.
The key here is to do the proper
research to find out what you would
pay, as well as what you would save
by refinancing. Once you've determined
those numbers, you will have a much
easier time deciding if a refi is
right for you.
About the Author: Brandon
Cornett publishes a blog about home
refinancing as well as several
other real estate websites. Visit
the author online at http://www.mortgage-refinance-advice.com/blog/