With mortgage interest rates at their lowest point since Richard Nixon was president, many homeowners are contemplating refinancing to take advantage of the rates. For some homeowners it's perfect decision and will enhance their fiscal outlook, however for many others it doesn't make sense and it can be wise for them to stick with their present mortgage. There are issues that one must consider before deciding to refinance.
Decide Why You Need To Refinance
You should ask yourself why you want to refinance your mortgage. If you presently have a variable interest rate and want the security of a fixed interest rate, refinancing may be the ideal path for you. If you've decided that you would like to change from a 30-year mortgage into a 10- or 15-year note so that your home is paid off before the children go off to school or you're prepared to retire, it might make sense. If, on the other hand, you would like to refinance so which you can take enough equity to pay off credit cards and other debts, think about the move carefully before doing so. Remember, refinancing doesn't eliminate debts, it merely restructures them. Rather than owing money the debt is being secured by you with your home. If you run into financial trouble and can't cover the loan, the mortgage creditor gets the option of foreclosing on your home.
Examine How It Helps Your Finances
Put pen to paper or use an internet mortgage calculator to figure how much improvement may assist your financial plan. If you're switching from a variable rate loan into a fixed loan, then estimate how much you will probably save interest payments. Do the same thing if you're choosing for a shorter-term loan. While your monthly payment is likely to go up once you change from a 30-year into some 15-year mortgage, the interest rate is normally lower on the 15-year instrument. Figure how much you're going to save over the life span of the loan should you change now.
Look At How Long It Will Have To Pay Off
It's not uncommon to cover 3 to 6 per cent of the outstanding principal in refinancing fees, as stated by the Federal Reserve. Say that you’re currently refinancing $300,000. Four percent of the sum will be $12,000. If your interest rate saved you $300 per month, it would take 40 weeks to pay yourself back to those refinancing costs. If you only intend on living in your house for another couple of years, it surely does not make sense to refinance. If, however, you intend to be there for many years more you may choose to think about it.