There are many different reasons for refinancing your home. From reducing your monthly payments to changing from an adjustable rate mortgage to a fixed rate mortgage, refinancing can save you thousands of dollars over the course of several years. But there are some guidelines and things you should know about refinancing before you make that final decision. Here are some tips to point you in the right direction of you're not sure if refinancing is right for you.
One of the most important factors when it comes to refinancing is timing. Right now, interest rates are at an all-time low and are most likely not going to get lower. As a result, refinancing your home in this type of market will likely give you the lowest rates you'll ever see.
There are two types of refinancing mortgages - "no-cash-out" and a "cash-out". A no-cash-out refinancing mortgage is a loan that does not exceed the mortgage debt that is currently owed. These loans may require you to pay points and closing costs out of your pocket. You can opt for mortgages without closing costs, but the interest rate will more than likely be higher and you'll end up paying more. Cash-out refinancing mortgages are loans that exceed the amount owe on your loan. This is usually done if you are looking to remodel or upgrade your home. When you choose a no-cash-out refinance, you can generally borrow up to 95 percent of your home's value. But if you choose a cash-out refinance, you can generally borrow up to 75 to 85 percent of the home's value. Some lenders will loan you up to 100 percent of your homes value, but this is not recommended unless you are completely revamping your entire home. Never take a cash-out loan to pay other loans or debts such as credit cards or car loans. If you switch non-secured items to a secured loan which is secured by your home can be risky and the possibility of losing your home could be greater.
To see how long it would take you to pay off a refinance mortgage, you would divide the cost of the refinance (or the points) and the closing costs by how much you may save each month. This is good if you plan on owning your home for at least five more years and you can lower your interest rate with a no-point and no-closing cost loan.
Deciding if refinancing is good for you really depends on your financial situation. If you already have a mortgage with a good interest rate, it really doesn't hurt to see if you can refinance your mortgage for a better rate. Refinancing your mortgage is often a good idea because you may be able to save more money over the life of your loan.
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