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Is Refinancing a Good Deal? |
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Is Refinancing a Good Deal?Author: Barney Johnson Deciding to refinance can be hard for some individuals to make. Before you invest the money to refinance, there are some things to consider about mortgage refinancing prior to submitting the application.
Making the Decision
There are some different factors to consider prior to making the decision to refinance your home loan. First, if you have an adjustable home loan or a high interest rate, refinancing your home mortgage loan is a good economic move. This is particularly important if your adjustment rate will balloon at some point during the loan, which can usually occur in the third year of the mortgage loan. Plus adjustable loans are just that—adjustable. Your monthly mortgage could be one amount one month and then a different amount the next month. It is dependent on how your loan was originally set up. If you had an impaired credit history you may have gotten what is known as a bad credit loan and in that case refinancing is an excellent idea.
Another thing to know prior to going through the process of refinancing is if the original loan has a penalty for paying it off early. Of course, this cost may outweigh the increase in monthly payments you are or will be facing.
Moreover, you should know how good your credit is prior to submitting an application for refinancing your home mortgage loan. You can then enter your interest rate, amount of loan, and use a mortgage calculator to calculate your expected payment. If your credit was poor and you could only receive a bad credit home loan when you first obtained the mortgage loan, chances are your credit is better and you could qualify for a fixed rate mortgage with a good interest rate. However, if it has gotten worse, then it would be best to wait until your credit is better so that you can obtain a fixed rate mortgage at a better percentage than you currently have on your mortgage.
How much does a refinance cost?
Refinancing your home mortgage will incur closing costs and loan fees—much the same as when you obtained your loan the first time. Additionally, as discussed above, if your credit score is lower, then you will most likely not receive a good interest rate and/or the rates will be higher to obtain a loan. It is also important to request that the lender not perform a lot of credit score pulls as that can lower your credit score. If you are shopping around for the best deal, these lenders will want to pull your credit to obtain your credit score, which again, will lower your score.
When discussing payment terms and costs with the lender, ensure to find out if the loan fees will be rolled into the cost of the loan—having it rolled into the loan will require you to pay interest on this amount as well over the life of the loan.
Excess Funds from the Refinance
When you refinance your home loan, you have a couple of different options. First, you can obtain a loan that includes the equity in your home, to which you can receive the excess to do with as you wish. Second, you can just obtain a loan for the loan amount you need. Obtaining a home loan for the amount you need is a good move for bettering your financial position. However, if you know that there needs to be some remodeling done, or you have a big expense coming up such as paying for college or a medical expense, then taking out a loan for the loan amount plus equity may be a good option for you.
It is important to remember that if you take out a loan that incorporates the equity of your home, if for some reason you have to sell your home, you will not have equity to take out of your home to pay for realtor's fees, a down payment on another home, or any other costs associated with selling a home.
Do your homework
The benefits of refinancing your existing home loan can certainly outweigh the problems or concerns for doing so. When you have made the decision to refinance, do your homework first. Check out different websites, using the numerous home loan calculators that most lenders have available on their websites. This can help you in determining how much the monthly mortgage would be. Of course, this is only an approximate as it wouldn't include the fees associated with the loan, etc.
One thing to consider when refinancing is determining if a mortgage broker would better serve your needs or just a mortgage lender. The mortgage broker is a middle person who will shop around for the best deal for you. The mortgage lender usually has a few different banks that they work with in obtaining home loans for clients. Again, do your homework. One size does not fit all.
Author Bio: Barney Johnson is Marketing Manager at Choice Home Loans. Choice Home Loans offer professional advice on home loans, from refinancing to reverse mortgages. My PC Backup
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