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Should You Refinance Your Home Mortgage?

Many home owners have a fixed rate on their mortgage, and when the mortgage rates on a downhill trend, the best solution is to refinance at that low interest. It sounds hip and beneficial, but it takes a lot of time and cost. The cost involved in refinancing your mortgage is not so high, but it is still money. Now, in some situations, the cost of refinancing would be more than what you are trying to save. It all depends on the situation you are in. We will consider a few principles here. Firstly, if you have an adjustable rate mortgage, and the rate has spiked up, it is best to refinance at a lower rate. The best part is that, in this type of loan, the rates are free to change, and when they drop it is an awesome time. Sometimes, you would be paying more than what you would be paying with a fixed rate mortgage. Secondly, a huge sum of people go with a fixed rate mortgage rate because it will keep the rate at a constant level. This is the most favoured mortgage loan type. This is a good choice, especially when mortgage rates go up, you would still be paying at that low interest rate you got a couple years back. Thirdly, you look at the total cost involved in refinancing the home. You should look at how long you plan on living at that resident. Closing cost can reach the thousands, so you should calculate and see when you would break even, if you don\’t, it is not worth the hassle.

EXAMPLE: Let\’s just say your monthly down payment was reduced by $120 and your total closing cost on the mortgage was totaling $4000. This means you would have to live at that home for 34 months, to break even. If you move before the 34 months, this refinancing wouldn\’t profit you.

Fourthly, the total equity you have in your home is an added bonus. If you have been living at your current residence for a while, you would have some good equity. Now, if you refinance at a lower interest and a loan amount as well. This is like a double promotion. Overall, this will reduce your monthly mortgage payment. Lastly, the new refinanced mortgage period will be added on to your existing mortgage. Lets say you had 20 years left on your 30 year mortgage, and you refinance for a 30 year mortgage; you will be back where you started again.

In conclusion, you can see there are many important factors that plan an important role in determining whether you should refinance. When you plan on refinancing determine whether you benefit from it. Your credit rating  comes into play when you refinance. If you have do not have a good credit rating, you would not be eligible for the best rates around. So, next time you see a low interest rate on an ad, its okay to jump off and take a look, but make sure to calculate and see whether you would benefit from it. You can contact your local mortgage advisor or financial advisor for more information. You may use our mortgage calculators to help you as well.

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2 Responses to “Should You Refinance Your Home Mortgage?”

  • PaulNo Gravatar says:

    very informative post, thanks for the awesome post

    Its a really tough decision in the current economic state of the world

    Reply

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