Why should you refinance your home mortgage? Well, there are three main reasons you might want to do this.
You may be looking for a mortgage product that is a better fit for your current financial situation.
You may have a mortgage loan that has a relatively high interest rate that you could improve by refinancing.
You can tap into some of the equity in your home by doing a cash-out refinance.
Here is a brief look at these three reasons for refinancing your mortgage.
Remember to take into account the fees and closing costs (where applicable) that you'll incur when determining weather a refinance is the correct financial decision for you.
1 - More suitable for your financial situation - Finding a mortgage product that's just a better fit for where you are financially can be a great reason to refinance.
Let's say, for example, that you currently have an adjustable rate mortgage and the initial interest period is about to expire.
This usually occurs in 3, 5 or 7 years with adjustable rate mortgages (known as ARMs).
When the rate adjusts, your mortgage payment will increase substantially.
To avoid this you can refinance to a fixed mortgage of 15 or 30 years.
This will usually give you a lower interest rate, and thus a lower payment than you'd be faced with after your ARM adjusted upward.
Going the other way, you may have a fixed mortgage and may need to lower your monthly cash flow requirements for a few years.
You could refinance into an interest only mortgage.
This will create a situation where you are not reducing the principle balance of your loan, but paying only the interest portion.
Because of this, your monthly payments are reduced, increasing your available cash.
After a while, you'd probably want to refinance back to the fixed mortgage because the interest only mortgage will require you, at some point, to beginning amortizing the loan and your payments will increase.
2 - Interest rate reduction - You may have taken out your mortgage at a relatively high interest rate and could benefit by reducing the interest rate, and your monthly payment.
Your interest rate could possibly decline due to the market interest rate declining.
This situation was very common at the beginning of this decade.
Another reason you could receive a lower interest rate is your credit rating could have improved.
If you were in the sub-prime borrower category when you got your mortgage, with a FICO score of under 650-680 (depending upon the lender), and your credit score has subsequently improved, you may receive a much better interest rate by refinancing.
3 - Effectively use home equity - One of the main reasons people refinance their home mortgage is to allow them to use some of the equity in their homes.
Many areas of the country have experienced substantial real estate appreciation over the last 5 or so years, although that seems to be ending for most.
In many cases real estate values are up 50 to 150%.
If, for example, you bought a home in San Diego, New York or Las Vegas, you saw home values climb by between 14% - 23% annually from Q1, 2004 and Q1, 2006.
That kind of appreciation creates substantial equity in your home you can use for other things such as investing, home improvements or debt consolidation.
Many homeowners have chosen to get at their home equity by doing a cash-out refinance.
In such a refinance, you obtain a mortgage for more than your original mortgage, based upon the revised value of your home.
If, for example, you bought your home for $180,000 in 2003 and now it's worth $325,000 (a fairly common situation on some areas), you now have $145,000 in equity you can use for other purposes.
You could refinance, and get a new mortgage for $275,000.
After closing costs, if they apply, you'd have about $85,000 - $90,000 in cash.
Cash is always nice, isn't it? Many American have chosen this route in the past few years.
That may decline for a little while, as home values experience a decline in some areas, but overall, it's sure to remain a popular choice.
These are three reasons why you may want to refinance your home mortgage.
Are any of them right for you?
You may be looking for a mortgage product that is a better fit for your current financial situation.
You may have a mortgage loan that has a relatively high interest rate that you could improve by refinancing.
You can tap into some of the equity in your home by doing a cash-out refinance.
Here is a brief look at these three reasons for refinancing your mortgage.
Remember to take into account the fees and closing costs (where applicable) that you'll incur when determining weather a refinance is the correct financial decision for you.
1 - More suitable for your financial situation - Finding a mortgage product that's just a better fit for where you are financially can be a great reason to refinance.
Let's say, for example, that you currently have an adjustable rate mortgage and the initial interest period is about to expire.
This usually occurs in 3, 5 or 7 years with adjustable rate mortgages (known as ARMs).
When the rate adjusts, your mortgage payment will increase substantially.
To avoid this you can refinance to a fixed mortgage of 15 or 30 years.
This will usually give you a lower interest rate, and thus a lower payment than you'd be faced with after your ARM adjusted upward.
Going the other way, you may have a fixed mortgage and may need to lower your monthly cash flow requirements for a few years.
You could refinance into an interest only mortgage.
This will create a situation where you are not reducing the principle balance of your loan, but paying only the interest portion.
Because of this, your monthly payments are reduced, increasing your available cash.
After a while, you'd probably want to refinance back to the fixed mortgage because the interest only mortgage will require you, at some point, to beginning amortizing the loan and your payments will increase.
2 - Interest rate reduction - You may have taken out your mortgage at a relatively high interest rate and could benefit by reducing the interest rate, and your monthly payment.
Your interest rate could possibly decline due to the market interest rate declining.
This situation was very common at the beginning of this decade.
Another reason you could receive a lower interest rate is your credit rating could have improved.
If you were in the sub-prime borrower category when you got your mortgage, with a FICO score of under 650-680 (depending upon the lender), and your credit score has subsequently improved, you may receive a much better interest rate by refinancing.
3 - Effectively use home equity - One of the main reasons people refinance their home mortgage is to allow them to use some of the equity in their homes.
Many areas of the country have experienced substantial real estate appreciation over the last 5 or so years, although that seems to be ending for most.
In many cases real estate values are up 50 to 150%.
If, for example, you bought a home in San Diego, New York or Las Vegas, you saw home values climb by between 14% - 23% annually from Q1, 2004 and Q1, 2006.
That kind of appreciation creates substantial equity in your home you can use for other things such as investing, home improvements or debt consolidation.
Many homeowners have chosen to get at their home equity by doing a cash-out refinance.
In such a refinance, you obtain a mortgage for more than your original mortgage, based upon the revised value of your home.
If, for example, you bought your home for $180,000 in 2003 and now it's worth $325,000 (a fairly common situation on some areas), you now have $145,000 in equity you can use for other purposes.
You could refinance, and get a new mortgage for $275,000.
After closing costs, if they apply, you'd have about $85,000 - $90,000 in cash.
Cash is always nice, isn't it? Many American have chosen this route in the past few years.
That may decline for a little while, as home values experience a decline in some areas, but overall, it's sure to remain a popular choice.
These are three reasons why you may want to refinance your home mortgage.
Are any of them right for you?
SHARE
