Am I Ready to
to fit your financial needs. When you refinance, you renegotiate
Refinance?
Buying a house is a major commitment and investment. Mortgages
typically have a life of 30 years, but a lot can change in that
period of time. As your family grows, your career advances, and
life surprises you, you might find that your financial situation is
different from when you initially took out your mortgage. Perhaps
interest rates are better today and you’re looking to save money
with a lower mortgage rate. Maybe you made a career move
you find a little more lucrative and you’re ready to make larger
payments to reach payoff sooner. Either way, refinancing your
home is a great option to balance your expenses and plan for your
future.
Refinancing a mortgage can be a confusing topic. What does it
even mean? Essentially, refinancing is taking a better mortgage
out on your current mortgage. Your goal is to completely pay off
your debt. Since your agreement usually lasts for 30 years, you’ll
need to pay interest. The interest you pay can either be a fixed rate
or an adjustable rate. A fixed rate means it’s the same percentage
of your loan amount for the entire loan period. An adjustable rate
is a percentage regulated by the federal government. Already
owning a home, this might sound like a review, but it’s important
to remember the parts of your initial mortgage before you consider
refinancing. Depending on where you are now in life, you might
want to find better terms for your mortgage. Refinancing allows
you to keep your home and change the payments you’re making
the terms of your loan with your current bank or find a different
bank willing to pay the remaining balance on your mortgage. The
new mortgage will then take the place of your current payments.
Before adjusting your mortgage, you need to know a few figures
about your finances. First, you need to know how much you’ve
paid so far on the initial loan. It’s also important to know where
your credit score stands, as this is one of the main factors banks
consider while adjusting your mortgage.
You should also consider current interest rates and the closing
costs involved with refinancing. First, look at the trends of today’s
interest rates. Your current mortgage lender can explain what
options are available through your lending institution, but you
should also investigate other lenders and compare offers. If market
or federal interest rates are lower today than when you took out
your mortgage, which is when it’s most common to refinance,
your new loan may end up lowering your interest rate and monthly
payments. This option allows you to save money for the long-term
but will require another 30-year payment period. If the remaining
balance on your mortgage is low and your credit score is good
or excellent (690 or above), you may be able to shorten your
new mortgage to a 15-year period. If you plan on staying in your
home for the life of the loan, refinancing for a lower rate is likely
your best choice. For example, let’s say you took out a $200,000
mortgage at a rate of 5.5%. As of today, you’ve already paid
$30,000 towards your house, but you see interest rates as low as
4.2% in the market. Refinancing this way would mean starting
another 30-year mortgage for the remaining $170,000, but with a
much lower rate and a longer amortization period, your monthly
payments would go down. If interest rates are higher, you can
still refinance. Your bank might give you the option of a loan with
a higher rate for a shorter period of time, meaning it will reach
payoff faster. This is an option if you’re willing to make a larger
mortgage payment, eager to clear the deed, or planning on living in
your home for fewer than 10 years after refinancing. In addition to
interest rates, you need to consider closing costs. Refinancing to a
lower rate may not be worth the closing costs required to refinance.
With these factors in mind, you should be able to calculate whether
refinancing will give you the best long-term value.

Refinancing your mortgage allows you to take a second look at

what is likely your biggest monthly expense and tweak it to fit
your life now. When you purchased your house, you couldn’t have
foreseen the way your life would unfold. Now that you’ve turned
your house into a home, take the opportunity to manage your
finances by refinancing your mortgage and designing payments
that help you meet a final goal.

Alix Clise
Home & Yard Magazine