Refinancing A Mortgage
Mortgage payments eat up the biggest bulk of monthly expenses for a middle income family in the US. With the economy in the downturn that is mainly caused by the huge loans to subprime mortgage, and with massive layoff and downsizing, mortgage payments become a heavier burden to a typical working family. Refinancing a mortgage is a desire of many homeowners who are affected by this economic slump.
Refinancing an existing mortgage means that you pay off your current mortgage and enter into another loan agreement. It is actually a repeat of the process that you underwent when you originally purchase your house and applied for a loan. But of course this time your aim is to be able to get the lowest possible mortgage rate. Now, let us review the basic information you need to know about refinancing a mortgage.
To start there are few questions that you need to ask yourself when exploring the option of refinancing your current mortgage. What is the prevailing interest rate? What is the direction the interest rate is going? Is it going down? Or is the interest rate going up?
How much you shell out each month for mortgage payment is directly connected to the interest rate of your loan. A half a percentage change will already result to a considerable annual savings. Further, if you are able to shorten the mortgage period together with the decrease in interest rate then a bigger savings in interest payments will even be realize. Of course, when the amortization period is shortened, say from 30 years to 20 years, then you will expect that your monthly payment is going to increase but the good news is a bigger chunk of it goes to principal payments. This will build up your equity faster.
How is your credit score? From the time you purchased the house, do you think your credit score has improved? Did your credit score improve enough that creditors may be able to lower the interest rate for a new loan? Are you entertaining a new form or type of mortgage loan agreement?
Your credit score is surely one important factor to gauge if it is wise to refinance. A considerable improvement in your credit score means that you will be most likely to negotiate for a lower interest rate for your new loan. Then, if you are currently under an adjustable-rate mortgage or ARM then you might consider shifting to a fixed-rate mortgage. This way you will fell secured that your monthly payment remains the same.
You may also have to consider other issues like the following questions. Is this a second home loan mortgage that you are thinking to refinance? Naturally, lenders will be more cautious if it is as they know that your finances are spread thinner with two mortgages. How long have you been paying your mortgage? If you have been paying your mortgage for a long time, a bigger percentage of your payment goes to your principal instead of simply payments for interests. Remember, the longer you have been paying your mortgage the bigger is the percentage that goes to your principal. So you have to consider if it is wise to do a refinancing during the latter part of your amortization period, since you will restart the process once again.
In exploring the refinance of your mortgage you may also like to check mortgage rate comparison tools. Lastly consult with friends and family who may know more about the factors to consider or have experienced refinancing and the processes behind it.