Does it Pay For Me to Refinance ?
There aren’t many people who would not like to be able to reduce their monthly mortgage payments and keep a few extra dollars for themselves. The question is how to determine whether to refinance at any given time or not ? How can you know for sure when is the best time to refinance, what indicators should you look at to determine this?
There are certain factors that you may look at such as the current trend in the mortgage market, whether we are seeing a rise or a fall in rates, and other things that may affect your payments such as mortgage insurance and your long term goals in regards to paying of your mortgage early. You may also want to refinance to consolidate other debts such as credit cards balances into a more manageable interest rate perhaps. So in effect you will need to consider the timing as much as the reasons to refinance your loan. These are all critical factors that need to be balanced out when considering your decision to refinance your mortgage.
When should i refinance?
Obviously it can be quite tempting to consider a refinance when interest rates have fallen to historically low rates as we are currently seeing in these recent times. However refinancing your mortgage rates can be quite costly due to all the fees involved. Refinancing makes sense if you plan on staying in your home for at least 7- 10 years or more. Remember that the fees you will pay to renegotiate your loan could end up costing you thousands of dollars, so you will want to at least recoup those costs over time. If you don’t plan on living in your home for more than 7 years after a refinance, the costs can surely out weigh the benefits, even if you sell at a profit.
On the other hand if you find your self with an adjustable rate mortgage (ARM) and you are looking at some tough financial times due to the rise in your monthly payments like so many other Americans these days, you might want to try to refinance into a fixed rate mortgage to save you from the uncertainties adjustable rate mortgages bring. Even with the fees involved that may also be worked into your payments, having the peace of mind knowing that your rates cannot increase unexpectedly and possibly force you into foreclosure maybe reason enough.
Another thing to consider is by how much can you reduce your current interest rates? The ideal situation would be if you could lower your interest by at least 2 points, so if your are currently at 6.75 % it would certainly make sense to take advantage of the extremely low rates that are available today. It is entirely possible as of the time of this article to refinance to a 4.5- 4.75% which in effect, if you choose to stay in your home for at least another 7 years, could save you potentially tens of thousands of dollars over the long run.
Interest rates are not the only thing that you should be looking at. One of the biggest mistakes consumers make is that they accept all the fees associated with mortgage refinancing. There are in many cases mortgage agreements that have hidden charges or mark ups that are disguised to look like valid costs and fees. So even if a homeowner manages to reduce the interest rates, they may fall victim to unscrupulous predatory lenders that get around the loopholes of the Federal disclosure laws and find themselves paying a half point or .75 point more than they had to. This may not seem like a lot of money , but when we are talking about a 350,000 mortgage, this could put many thousands of dollars into your lenders pockets that you could have used for your own needs. It is imperative that you do your home work and shop around as much as possible.
One last thing, you should always use a mortgage broker instead of your bank. The reason is there are many practices the banks don’t want you to know about in regards to the true interest rate you qualify for. In many cases a customer will unknowingly accept a marked up interest rate disguised as other legitimate fees in which the banks do not have to disclose to you. Banks are exempt from RESPA laws that govern the transparency of mortgage agreements, so they can get away with just about anything. Mortgage brokers on the other hand, are obligated to full disclosure and will have to justify to the consumer all the fees and costs involved. However having said this, it is important to shop around as much as possible to compare mortgage rates and get the best deal for your self.
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