If you bought your home a few years back when annual interest
rates were 12 percent, refinancing now can save you a great deal
of money over the term of the mortgage. Or you might be able to
switch from a 30-year mortgage to a 15-year, so you can pay off
your loan in half the time with roughly the same monthly
payments.
Refinancing can be worthwhile, but it does not make good
financial sense for everyone. A general role of thumb is that
refinancing becomes worth your while if the current interest
rate on your mortgage is at least 2 percentage points higher
than the prevailing market rate.
There are various reasons to refinance your home:
1. To lower the interest rate on your mortgage, reducing your
monthly payments and overall cost;
2. To reduce the term or length of your loan, doing so can save
you thousands of dollars in interest;
3. To provide a means of consolidating your debt;
4. To draw on the equity built up in the house to get cash for a
major purchase or for children's education;
5. Have an adjustable-rate mortgage (ARM) and want a fixed-rate
loan to have the certainty of knowing exactly what the mortgage
payment will be for the life of the loan.
It is better to refinance if you can get an interest rate at
least two percentage points lower than what you are currently
paying. However, every situation is different. Some lenders are
offering reduced fees or no points. Asking yourself a few
questions may help you determine if you can save money:
1. How much can I lower my current monthly payment? 2. How much
will I pay in refinancing costs? 3. How much will I still owe on
the house? 4. How much am I currently paying each month? 5. How
much did I initially pay for the house?
There are other considerations, too, such as how long you plan
to stay in the house. Most sources say that it takes at least
three years to realize fully the savings from a lower interest
rate, given the costs of the refinancing. Itemize all the
expenses of the refinance and estimate your new monthly
payments. Answering these questions can help you to decide if
you should refinance.
Before settling on a refinancing deal, you might want to engage
a lawyer to look out for your interests and make sure everything
is filled out properly. Talk with mortgage lenders, real estate
agents, attorneys, and other advisors about lending practices,
mortgage instruments, and your own interests before you commit
to any specific loan.
About the author:
Copyright © 2005. Chileshe Mwape writes for the Mortgage Lenders
website at
http://banks.lending-guide.org/ and he's also a regular
contributor to the Auto Loans website at
http://www.motor-car-loans.org.uk/
