Should You Refinance? -

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Should You Refinance?

Should You Refinance?

There are several reasons that might make someone consider refinancing their existing mortgage. One would be to get a lower interest rate than what they currently have, thereby reducing monthly payments and lowering the overall cost of the mortgage. Another is to shorten the length of the loan, which can save quite a bit in interest payments. Thirdly, someone may have other debts that they wish to pay off, and refinancing may provide them a means of consolidating that debt into one overall lower payment.

A lower interest rate isn't the only thing that should be taken into account when thinking about refinancing. There are costs and fees associated with refinancing your mortgage. The bank will charge fees, there will be costs for a new inspection and a new appraisal, title search, and so on. The process that is gone through is very much like the process that one goes through on getting a first mortgage. It requires a new application with a new credit check, survey, and sometimes an appraisal. As it is with a first mortgage, this can be a long and costly process.

In general, it makes sense to refinance if the interest rate on the new loan is at least two percentage points lower than that of the current loan, although this is not always the case. Some things that need to be taken into consideration are the total cost of the refinancing, the total monthly savings, and how long you plan to stay in your house after you refinance. You can calculate how long it will take you to break even on refinancing costs by dividing the total cost of the refinance by the monthly amount you will be saving. For example, if the cost is $2,500, and you reduce your monthly payments by $100, then it will take 25 months to start seeing the savings from the reduced mortgage rate. If you plan on staying in your house longer than this, then it may just make sense for you.

Another reason that someone might consider refinancing is if they are trying to consolidate debt. In such cases, there is also the tax impact that one should look at. Many loan types are not tax deductible, whereas mortgage loans are. Therefore for that reason alone it may be a good idea to consolidate outstanding credit card debt, student loans, car loans, as well as others.

Some people may not have a choice about refinancing, it is a must for them. This happens in cases where they have a loan with a balloon payment coming up and no conversion option. In instances like this the best bet is to refinance the mortgage a few months before the balloon payment is due.

If you do decide that the costs associated with doing a refinance outweigh the benefits, you should ask your bank or financial institution if you can get some of the terms that you want by agreeing to a modification of your current loan. However you choose to go, remember that it always makes sense to consult with a mortgage professional before making your move. This can end up saving you both time and money. You should also do research before making a decision. Spend some time on the web familiarizing yourself with what you are getting yourself into. Take the time to read up on and understand what your options are.

More on Mortgage Refinancing.

Michael VanDeMar

In The News:

ABC News
US MBA's Mortgage Applications Index Fell 1.5% (Update1)
Bloomberg - Aug 20, 2008
... as fewer homeowners sought to refinance their loans The Mortgage Bankers Association's index of applications to buy a home or refinance a loan dropped ...
US mortgage applications hit 8-year low Times Online
Mortgage application volume hits multiyear low The Associated Press
Mortgage volume fell 1.5% last week: MBA MarketWatch
USA Today - Bizjournals.comall 242 news articles

Housing And Economic Recovery Act
Mondaq News Alerts (subscription), UK - 14 hours ago
The Act also expands the target population served by the FHA and creates the "Hope for Homeowners" voluntary FHA-insured mortgage refinance program. ...

Mortgage penalty unlikely to vanish
Fall River Herald News, USA - 3 hours ago
I have a prepayment penalty on my mortgage loan for three years. I’d like to refinance sooner. Is there a way a lender can waive the penalty? ...

COMMENTARY: FHA is riding to the rescue, taxpayers beware
Reuters - 9 hours ago
(Ann Schnare is an economist specializing in housing and mortgage finance. She was former senior vice president for corporate relations at Freddie Mac and ...

Mortgage Rates for Best Borrowers Rise as Bonds Slump (Update2)
Bloomberg - 7 hours ago
21 (Bloomberg) -- A decline in mortgage bond prices is raising interest rates on US home loans, even for borrowers least prone to default. ...

How to assume the mortgage of a troubled homeowner
MarketWatch - 5 hours ago
I am (and was for a while) looking to refinance my four-unit owner-occupied property in Santa Monica, Calif., but I am having a hard time finding a good ...

Washington Post
Fannie, Freddie: Plunge then rebound
CNNMoney.com - 7 hours ago
The Wall Street Journal Thursday said that the firms needed to refinance $225 billion in mostly short-term debt by the end on September. ...
Business Highlights Forbes
Freddie and Fannie Bail-Out Imminent Sovereign Society
Freddie And Fannie Bailout Fears Mount Investor's Business Daily (subscription)
Forbes - CNNMoney.comall 2,070 news articles

Housing market keeping couples together
Chicago Sun-Times, United States - 10 hours ago
If one wants to keep the home, it's difficult to refinance the mortgage so the departing spouse can be cut loose from the debt. And evaporated home equity ...

Boston Globe
THE ASSOCIATED PRESS
Newsday, NY - Aug 20, 2008
They can't refinance because housing prices in those markets have nose-dived, and lenders are now demanding full documentation of income and assets. ...
FDIC to offer better terms on thousands of IndyMac mortgages MarketWatch
FDIC Details Rescue Plan for Homeowners With IndyMac Mortgages ABA Journal
all 289 news articles

Some Fear Commercial Property Loans Will Be Next Stage in Downturn
New York Times, United States - 4 minutes ago
The Riverton Apartments, a 12-building complex in Harlem, said that it might default on a $225 million mortgage payment. But bankers believe the headwinds ...

mortgage refinance - Google News

Should You Refinance?

Mortgage Refinance