Refinancing Your Mortgage Can Really Save You Money
by Chileshe Mwape
Published on this site: August 2nd, 2005 - See
more articles from this month
Refinancing a mortgage is simply taking out a new mortgage.
It means paying off one or more old debts by getting a new
loan. Sometimes, refinancing your mortgage can really save
you money. You may be able to pay less interest, lower your
monthly payment, or convert from a 30-year loan to a 15-year
loan and build your equity faster. But be sure that refinancing
is right for you.
- Refinancing can be a good idea for you if you:
want to get out of a high interest rate loan to take
advantage of lower rates. This is a good idea only if
you intend to stay in the house long enough to make the
additional fees worthwhile.
have an adjustable-rate mortgage and want a fixed-rate
loan to have the certainty of knowing exactly what the
mortgage payment will be for the life of the loan.
want to convert to an adjustable-rate mortgage with a
lower interest rate or more protective features.
want to build up equity more quickly by converting to
a loan with a shorter term.
want to draw on the equity built up in your house to get
cash for a major purchase or for your children's education.
- Some situations where refinancing your mortgage can
really save you money:
refinancing your higher interest rate unsecured loans
with lower interest rate unsecured loans if the terms
of the loans are comparable and the new rate is lower
than the existing rate.
refinancing your secured debts (such as your mortgage
or car loan) if the new loan is for the same length of
time left on your old loan (or shorter), and the interest
rate on the new loan is substantially lower than the interest
rate on your existing loan.
refinancing your home to pay-off expensive car loans or
credit cards provided you're not in financial difficulty
and not at risk of losing your home.
Mortgage refinancing can be worthwhile, but it does not
make good financial sense for every homeowner. A general
role of thumb is that refinancing becomes worth your while
if the current interest rate on your mortgage is at least
2 percentage points higher than the prevailing market rate.
This figure is generally accepted as the safe margin when
balancing the costs of refinancing a mortgage against the
savings.
Sometimes, refinancing is an appropriate way to resolve financial
problems. In some situations, however, refinancing can make
existing financial problems worse. If you decide that refinancing
is not worth the costs, ask your lender whether you may be
able to obtain all or some of the new terms you want by agreeing
to a modification of your existing loan instead of a refinancing.
Chileshe Mwape writes for the Mortgage Lender Guide
at: http://www.lending-
guide.org/ which offers informative articles about mortgages
and loans. This article may be reprinted online as long as
all the above link is active and clickable.
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