Refinancing your mortgage can not only give you
a lower monthly payment, but also consolidate
your debts. Refinancing eliminates the high interest
debt of a home equity loan and allows you to change
the terms of your current mortgage which can positively
effects your monthly mortgage payments. A home
equity loan can even be used like a checking account.
There are three ways in which refinancing can
lower your payments. The first is to increase
the term of the loan by switching from a 15 to
a 30 year term. By doing this, you will significantly
lower your monthly mortgage payments. If long
term savings are more important, then you can
refinance your loan term from 30 to 15 years.
A third is to switch from a traditional mortgage
with principal and interest payments to a mortgage
of interest only payments.
Usually, traditional fixed rate mortgages or
adjustable rate mortgages are refinanced as interest
only loans. This way, you’ll have the option
of paying the interest only and the principal
amount as you wish. You can also reduce the monthly
payments which gives you more control over your
cash flow.
An interest only refinance is good option for
people who expect to be in their homes for the
less than the interest only period. The money
you receive from refinancing can be used for investments
with a higher rate of return. Many people use
the cash from their refinancing to pay down high
interest credit card debt, save for your child’s
tuition, purchase a new car, and make home improvements.
The longer your stay in your mortgaged home the
better the refinancing options. When refinancing,
try to avoid paying points. Points paid on refinances
are deducted from the tax only in small installments.
It takes several years before your lower rate
makes up for the point you’ve paid. Before
agreeing to a loan with points, consider whether
the lowered payments will more than the make up
for the closing cost, fees and the points.
Refinancing usually takes 2-4 weeks. There are
various reasons why homeowners refinance. People
who wish to stay in their homes for more than
five years refinance can refinance with an ARM
(adjustable rate mortgage) instead of a fixed
rate mortgage. This is because the market rates
are constantly changing and today’s market
offers the perfect financial climate for refinancing.
However if you wish to stay in your home only
for a short period, then paying a higher rate
of interest for a 30 year fixed rate mortgage
may be not be the best option. In this case, you
might consider refinancing to an ARM and paying
a much lower amount each month.
The first step in refinancing your mortgage is
to fill out an application form at the lender
of your choice. You’ll need to provide certain
documents to help your mortgage lender complete
the application such as: proof of income, a copy
of your homeowners insurance, copies of your W-2
forms, copies of asset information, and a copy
of your title insurance.
Whether or not to refinance is an important decision
and considered carefully. Your decision should
be in line with your long-term financial goals.
If you want to lower your interest rate and monthly
payments, then refinancing is a popular option.
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