If You have been Thinking about Refinancing

If You have been Thinking about Refinancing

Refinancing is a term used to denote a new loan that incorporates a person’s other debt responsibility, but with new terms. The term ‘refinancing’ may also be referred to as restructuring a debt. When considering a refinancing home loan it’s important to make sure you have the answers to a few important questions beforehand.You’ll want to know what current interest rates are; do you expect them to rise or have they fallen? How is your current credit score? Consider that it should have improved if you want to be eligible for a refinancing home loan. The answers to these questions and more will help you better determine whether to refinance or not.

Since your home is probably one of your most valuable assets, it’s vital that you have a solid financial advisor whom you can trust to counsel with. Refinancing costs, therefore your choice in lending institution and /or mortgage broker will be the next most important decision to make. Refinancing allows you to pay off your existing home loan, or mortgage, while creating a new one under different loan terms and conditions.

What to Consider When Refinancing

If market conditions are such that interest rates have dropped, and you have a higher or better credit score, it could be a good time to reconsider the possibility of a refinancing home loan. Refinancing with a lower interest rate can help you build up equity in your home more rapidly, but it also means you’ll have lower monthly payments as your loan is refinanced using current lower interest rates. But you will need to have good credit to do this.

You can adjust the terms of your mortgage, such as increasing or decreasing the length of your term. Increasing your loan term, such as choosing a 30-year loan, means you will end up paying more interest in the long-term, but your monthly payments will be lower. If you decide to decrease the length of your loan term, such as choosing a 15-year loan, you will have lowered interest rates, the loan is paid off quicker, but the monthly payments will be significantly higher as the principle is being paid off at a higher percent each month.

Another option that many home buyers can consider, if they want to lower the length of their home loan is that they can pay off more of the principle per month instead of having to refinance.

What about ARMs? Adjustable Rate Mortgages means that monthly payments can fluctuate according to current interest rates. This may be great when interest rates are low, but if you suspect interest rates will climb again, fixed-rate mortgages will guarantee stable interest rates during the life of the loan which means monthly payments remain the same. It’s good to know that even ARM loans can be refinanced using the lower interest rates.

Another important point to consider is that deciding to refinance a home loan toward the end of your mortgage term might not be the best idea. Since considerable equity has already been built up in your home, the refinancing home loan mean the amortization process begins again. Monthly payments usually end up paying interest and do not continue to build equity. Considering all the available options, in addition to seeking advice from a financial advisor will help you understand the best choice for you.