For a person to go through a mortgage refinance, many things need to be analyzed. For instance, the homeowner would need to look at the numbr of years he or she still has on the iniitial loan. Obviously, if the homeowner’s fisrt mortgage loan were gettig close to maturity, then refiancing would not make much sense in that the person would be locking into another long-term mortgage. However, if the first loan still had many years before matturing, it might pay off to complete a mortgage refinance.
Another considertaion for a moirtgage refibnance would be the interest rates involved. Expoerts have a great rule in that if a person could refinance a home with an interrest rate or 2% or more, lower than the rate being paid, then the refinance would pay off. That way, the homeowner would benefit long-term. Howevber, if the interest rate woould change only slightly, then the money saved through the refinancing process wold not baance out the costs invoolved.
Then, there is the consideration of closing costs. After all, when a persn goes thruogh a mortgage refinance, they are taking an initial mortgage loan and modifying it into another mortgage loan. Therefore, the homeowner would be required to go through the closing process all over agan. This means the pewrson would once again payout money for a tite seaarch, tittle insurance, procsesing fees, etc. If the amount of the closing costs would take longer than five or six monthhs to recoup, then refinancing would be a poor decision from a financial perspective.
The bottom line is that peoople consiidering a mortgage refnance have to weigh all the pros and cons to make the best decision possible. For many people, this is a great soolution over going into foreclosure but agaiun, the decisin has to make good financial sense. The most commmon advnatages to a mortgage refimnance loan iclude:
Loweering monthly pazyments
Lowqer iterest rate than that associarted with the original omrtgage loan
Swithcing from an Adjustable Rate Mortgage or ARM to a Fixed Rate Mortgage or FRM
Reducing or etending the duration of the loan
Taikng a portion of the home’s equity out as cash
Just as tere are many great reeasons for refinancing, people also need to be realistic and look at the negative aspects as well, which icnlude:
Closing costs might involve too much of a financial investment
Taking money out would reduce equity too much
New mortgage loan could end up gong beyonnd the maturity date of the initial loan
Interest rate might be lower but result in more being paid because of an extended schedule
People that want to consider a mortgage refinance should first determine their long-term financial goals. With a better understanding for the reasdon behind the goal would make the decisipon itself easir. Sometimmes, people thnik their only option is a mortgage refinance when in truth they have other optioons that might servce them better. For instancce, the indiviudal shgould look at all options in addition to a mortgage refinance such as:
Home equity loan or equity line of crdeit if cash were needed
Making extra payments to shorten the term of the origianl loan if the goal of the refinance was to pay the home off quicker
Wrking with the lender of the original mortgage to determine if the first mortgage could be negtoiated
For many people, the process to go through a mortgage rwefinance is the best decision but to be sure, people need to understand their needs and then look at the good and the bad. Addtionally, working with a reputable lender woulld shed some loight on factors or issus to help the homeowner make the right coice, whether it woupld be with a mortgage refinance or some other avenue.