Everyone who owns a home knows firsthand the financial obligations involved. A sizeable portion of your monthly income is delegated to a cover a number of expenses, the largest being the mortgage.
Simply put, a mortgage is a long term loan that’s repaid over a period of time. Most mortgages are set on a monthly payment basis, while others are “accelerated” to allow the borrower bi-weekly or weekly payment options.
As with all loans there is an interest rate. A lower interest rate means lower payments, so it’s best to shop around for the lowest possible rate. Even if you have “locked in” with a plan at a set rate, it may be possible to refinance your mortgage to take advantage of a lower interest rate.
Mortgages can be fixed or floating. A fixed rate mortgage means that the borrower is obligated to pay the set interest rate for the full mortgage term.
In a floating mortgage, on the other hand, the rates and payments will fluctuate higher and lower as the market changes. There are pros and cons to both types of mortgages, and no one plan is the best choice for all borrowers. Many homeowners will use mortgage refinancing as a tool to move from a higher adjustable rate mortgage to a lower fixed rate plan.
In our prevailing market, mortgage rates will change on a regular basis. If you have already committed to a loan at a higher rate than today’s interest rate, you might want to consider mortgage refinancing.
When you refinance your mortgage, the full payment of your current agreement will be entered into a new loan at today’s interest rate. This can be a wise move when rates drop dramatically, by two points or more. Watch the prevailing interest rates and compare them to what you’re currently paying.
There are several factors to consider before moving to refinance your mortgage. Your remaining term is one important consideration. If you have just a few years to pay off the loan, then it wouldn’t make sense to refinance and commit to another extended payment period.
Various costs also come into play. Prepayment fees for your current mortgage, closing costs of the new agreement and other borrowing fees may be payable. Some lenders will charge a fee for closing a mortgage early, so ask questions and read the fine print before you make your decision.
Refinancing your mortgage can also bring extra cash when you need it. If you have built a significant amount of home equity, you can use mortgage refinancing to obtain a home equity loan. In this case, you can use your home equity to generate cash.
The proceeds from mortgage refinance can be used for various purposes, like debt consolidation, home improvements, or as a college fund for your children.
Many people wisely use mortgage refinancing to consolidate their debts. Choosing one monthly payment over many bills is not only easier, but it saves you a lot of money by avoiding higher interest payments from credit cards and private lenders. Your pocketbook, and your credit rating, will look a lot healthier.
When high interest rates and unpaid debt strain your budget, mortgage refinancing can be an easy solution. You’ll pay less interest and save money.