You may consider getting your mortgage refinanced when interest rates are lower. This is because the interest which a homeowner pays off on a mortgage is one of the largest expenses for them. It is sensible to search for ways by which you can reduce this expense. However, there are certain positive and negative aspects of refinancing a mortgage at the time when interest rates are lower.
Should You Consider Refinancing?
Lower interest rates can blow the refinancing in the market, but you should only consider whether refinancing would help you in your particular situation. The most important thing which you should take care of before refinancing is to evaluate how much money you will be saving with refinancing.
Loan Term
You should also take the term of your mortgage into consideration. You will have to pay off the closing cost on your refinancing loan. You can either sell your house in few years or roll the closing costs into your home loan. If you select the later one then you will have to include this expense in your break even calculations.
Refinancing for a Short Term
You are not going to save money if you are refinancing your existing loan with 20 years left into a new one with 30 years. You can get the total amount of your loan reduced if you refinance your existing 20 years mortgage into a 125 year mortgage with lower interest rates and reduced term.
Benefits of Mortgage Refinancing
With mortgage refinancing you get a number of benefits like you can avail a better loan, extend the net worth of your loan term and get the short term cash flow increased.
Better Loan with Refinancing
You can get a better loan with refinancing i.e., you can replace your unsuitable existing mortgage with a new mortgage loan with better options.
Increase the Long Term Net Value of your Loan
You can reduce the expenditure on interest with the savings that you raise from refinancing your mortgage. You can use that money for another long term financial plan or you can save it for your retirement.
Get Your Short Term Cash Flow Increased
Refinancing can help you to reduce your monthly payments and with more money each month you will be having more options to put it.
You can get rid of day to day financial pressure and can invest it anywhere with ease.
Downside of Refinancing
Despite of the benefits which are likely to gain from refinancing, be ready to bear the negative impacts of refinancing.
Unnecessary Fee on Closing Costs
Dishonest lenders can apply various unnecessary charges on the closing cost your mortgage. Some of these charges may not be revealed up front and will cause you a situation of must pay the mortgage.
Interest Overpaying for No Closing Costs
Usually a refinance loan doesn’t want to you to close any cash, but lenders create it by applying higher interest rates on your refinancing loan.
Negative Affect on the Long Term Net Value
There is no doubt about that refinancing will cut down your large monthly payments, but it will often convert the loan into a n expensive loan at the end of the loan if you have added more years in your mortgage loan. It might be valuable to pay off more than in the long run to save your home from foreclosure. However, if your main goal is to save money then you should be aware of the fact that lower monthly payments will not help you to raise long term savings.
