Are You Considering Re-Financing Your Home?
Jul 8th, 2008 by Kaushik Adhikary
As a homeowner, you may rightly consider re-financing your home from a wealth of options available to you. First you need to determine your refinancing goals. Next logical thing that you should do is to consult with a re-financing expert and determine if re-financing is the best solution for you.
Determine Your Goals for Re-Financing
When you refinance your mortgage, you take out a new home loan and use some or all of the proceeds to pay off the existing one. If you get a lower interest rate on your new loan than that of your old one, you’ll be saving money.
While there are no right or wrong answer as to why re-financing should be considered, there are obviously certain reasons for re-financing that are very common. They are:
- Reducing monthly mortgage payments
- Consolidating existing debts
- Reducing the amount of interest paid over the course of the loan
- Repaying the loan quicker
- Gaining equity quicker
Generally, in some cases it’s wise to refinance your mortgage. If yours is an adjustable rate mortgage, re-financing is profitable during rising interest rates. And if its a fixed rate mortgage, you may avoid the higher costs when the adjustable rates start going up.
But in any case you’ll certainly save money by getting a lower interest rate irrespective of your favorable condition. Make sure your monthly savings will pay back your refinancing costs.
If you are re-financing your mortgage with the sole purpose of dealing with your cash flow difficulties, and not for a savings perspective, then this may not be a good reason to refinance. Otherwise, in the long run, you may actually be paying more total interest on the mortgage.
Although readers may find their mortgage re-financing strategy fits into one of the above goals or they may have a completely different reasons for re-finance. But determining a valid reason is the most important decision you need to make before re-financing. This is because a homeowner (including the financial advisor), will have a tough time determining the best re-financing option for a homeowner if he does not know the goals.
Consult with a Re-Financing Expert
Once you have figured out why you want to re-finance, you should consider meeting with a re-financing expert to determine the best refinancing strategy. This will likely be a strategy that is financially sound.
Homeowners who think that they are particularly well versed in the subject of re-financing might consider skipping the option of consulting with a re-financing expert. However, this is not recommended because even the most educated homeowner may not be aware of the newest re-financing options being offered by lenders.
While not understanding all the options can have a significant impact on your decision making. Oftentimes homeowners may not even be aware of mistakes they are making.
Consider Not Re-Financing as a Viable Option
Homeowners who are considering re-financing may realize the importance of evaluating a number of re-financing options to determine which option is best suited to them. But at the same time they need to realize that considering not-re-financing option sometimes worked out to be the best option available.
For each re-financing option considered, the homeowner should determine the estimated monthly payment, amount of interest paid during the course of the loan, year in which the loan will be fully repaid and the amount of time the homeowner will have to remain in the home to recoup closing costs associated with re-financing.
Homeowners should also determine these values for the current mortgage. This can be very helpful for comparison purposes. Homeowners can compare these results and often the best option is quite clear from these numeric calculations. However, if the analysis does not yield a clear cut answer, the homeowner may have to evaluate secondary characteristics to make the best possible decision.
