Contrary to popular belief, refinancing a mortgage can help you save money as long as you make the right approach. For many homeowners, refinance is a source of ready cash when it is needed most. To begin with, you are likely to gain from refinancing since you pay a lower rate, which ends up with making lower monthly mortgage payments. On the other hand, if you continue to make the same payments, but which are based on lower mortgage rates, then you can build up equity on your home.
One of the best ways to gain from refinancing is to opt for a fixed rate mortgage if you currently have an ARM or adjustable rate mortgage. This will help you determine the exact amount you need to pay each month without worrying about fluctuating interest rates. However, you can still benefit if you opt for adjustable rate mortgage if you can manage a lower rate. One of the main advantages of refinancing is that you can have access to some of the equity you build up, which could go towards payments you need to make for a car loan, energy bills, or even finance your child’s education.
Many homeowners contemplate whether refinancing is the best option for them. The first thing to do is evaluate your current interest rate and compare it with the prevailing mortgage rates. You ought to consider refinancing if the current rate is at least 2 points lower than your existing mortgage. If you plan not to move home for the next 5 years at least, you can safely consider refinancing as an option. There are many costs involved in mortgage refinancing, which may not be suitable if you plan to sell your home in a couple of years.
As a homeowner you ought to be aware of the costs involved in refinancing a mortgage. For the most part, there are similar costs to your current mortgage. Among the unavoidable costs are legal fees, property appraisals, and title searches that need to be conducted. If you deal with your original lender for refinancing your mortgage, you may be able to eliminate some of these costs.
In some cases, mortgage lenders may ask for a payment upfront which may be a percentage of the total value of your property. In addition, there may be pre-payment penalties if you aren’t renegotiating with your current lender. These payments could work out into significant sums which must be determined prior to considering refinance as an option.
There are several pros and cons to be weighed before you determine whether refinancing is a feasible option for you. In addition, there are costs involved before you may stand to benefit. While you may take all the steps required to make sure you reap the benefits of refinancing, it would be prudent to contact your financial advisor to assess your situation. He or she will be in a better position to perform an analysis and advice you accordingly. When your finances are at stake, it is better to be safe than sorry.