Mortgage

Mortgage Refinance-What To Consider

Mortgage refinance is a major decision you need to make. However, if you have set your mind on refinancing your mortgage there are a number of factors you need to consider before you take the plunge. You need to start with the basics and understand what mortgage is all about. Refinancing will help you repay your previous mortgage loan and procure favorable interest rates on the new loan. However, you need to make sure whether the whole exercise makes financial sense in your situation.

A drop in interest rates makes many homeowners think of refinancing. However, many factors involved could affect your decision. Among the major factors are the amount of loan you wish to procure, the repayment period, and the new interest rate. For this, you will first have to compare your existing loan term including your current interest rate, loan balance on your first mortgage, and the monthly payments. In addition, there are several mortgage refinance costs involved when you apply for refinancing. These include closing costs and application fees for the new loan. You will also need consider how long you intend to stay in your current home. If you are to move within the next year or two, it may not be prudent to consider refinancing at the moment.

There are several products you may consider if you cannot afford monthly payments on a 15-year mortgage. These include the 5-year balloon and 7-year balloon options. If you are likely to move home within 10 years, you ought to opt for the 5-year or 7-year balloon.

For some homeowners, cash-out mortgage refinance is a viable option. This gives them the opportunity to make use of home equity to consolidate and pay off any debts including those on credit cards and car loans, or gain some extra cash for home improvement projects and more. Cash out mortgage refinance helps to lower total monthly debt payments by opting for an amount that is more than what is owed on the current mortgage.

Home mortgage refinance also benefits homeowners who need to balance their escrow account or pay off any pending property taxes. Since property tax rates and homeowner’s insurance premium keep changing on a yearly basis, some owners find it difficult to maintain their escrow accounts. Mortgage lenders are likely to increase monthly payments if the escrow account is short. In this case, refinancing helps the homeowner balance the escrow account.

It is advisable to use a mortgage refinance calculator in order to determine whether refinance is a viable option or not. These calculators help your calculate all the costs involved and the time it will take you to recover these costs. This will help you make an informed decision especially if you intend to move home in the near future. A mortgage calculator also helps you calculate your monthly payments and determine how much you could potentially save in the long run. It is important to carefully consider all the options prior to choosing a mortgage refinance loan. It would be prudent to talk to your advisor and get his expert opinion before you proceed.

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Janell R. Koehler

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