The Benefits of Home Mortgage Refinance
There are a number of benefits to home mortgage refinance, which is defined as the process of renegotiating the finance terms of your first mortgage. You can:
- Lower your interest rate, which can reduce your monthly payment. That savings can help pay other bills or build a savings account.
- Shorten the life of your loan. Although your payment will be higher, you can slash the interest you will pay out by switching from a 30-year to a 15-year mortgage.
- Change your adjustable rate mortgage to a fixed rate loan to lock in a low interest rate.
- Cash out some equity that has built up in your home to use for other things.
Things to Remember with Home Mortgage Refinance
While a home mortgage refinance may be easy to do – and there are many people that seem to do it continually – there are a few words of caution before you take the next step:
- Do not refinance if you are not planning on staying in the house for only a few years. Calculate how many months it will take for you to recover the costs involved in the home mortgage refinance process. If it fits within the amount of time you will be in the house and provides enough annual savings, then it is the right move.
- If you have already paid off half of your mortgage, do not refinance because you are now paying more principle than interest, so you will not realize any savings.
- Track all costs involved in a home mortgage refinance because you may be charged points or other fees, which will not make the process a financially wise decision. Each point costs a certain amount of money, further reducing your interest rate by a certain percentage, but raising your out-of-pocket expenses.
April 24, 2006