Dealing with a home mortgage is never easy. With the recent shaky economy, many homeowners are understandably cautious about taking on any long-term loans until their existing loans are cleared up. This was particularly true in the case of mortgages. However, between 2013 and early 2014, the market has seen a rebound. There has never been a better time to refinance home mortgaged, since the government has started new programs to help homeowners buy their properties quickly and safely. The Federal Reserve has stated that even if interest rates rebound a little during 2014, it is still an excellent time for homeowners to evaluate their existing mortgage and realize substantial savings by refinancing their loans.
Planning a Refinance
Although refinancing seems to be the buzzword, it is not as easy as it seems. MSN recommends refinancing only if the interest rates drop by 2 percentage points or more. Banks have tightened lending standards since the recession, and refinancing your existing mortgage may take time and effort. If you aren’t sure whether you should try a refinance or not, here are a few immediate concerns you should evaluate before approaching a lender.
Document Your Existing Mortgage – Before you actually set out to find a new lender, you should look into your existing mortgage. Figure out how much you have paid on your existing mortgage and whether it is financially feasible to refinance your loan. You can use an online mortgage calculator located at a site like Credit Sesame to ascertain how much you have left on your existing mortgage. Compare this to available interest rates and then determine whether it will be a good idea to refinance.
Decide on the Type of Refinancing – There are many options open to mortgage holders. You can choose to switch to a new lender with a lower interest rate. For example, if you have a $100,000, 30-year mortgage at 10 percent fixed interest rate, you will be paying about $215,000 or more over the course of that 30-year mortgage term. Consider the same loan with the same terms but with a lower interest rate of 8 percent, and you will be paying about $160,000. Of course, this is just a rough example, since you have to consider the new lender’s incidental fees, which will raise your overall loan amount. These fees may include application fees, appraisal fees, loan origination fees, inspection fees and so on.
Instead of switching to a new lender, it is sometimes better to negotiate with your existing lender to lower the rate or to increase the mortgage term to lower your monthly payments. If you have the money, you can also consider shortening the loan term and increasing monthly payments to pay off your loan quicker. Most lenders are more than happy to work with you to refinance your loan and it can prove to be cheaper than switching to a new lender.
When You Should Not Refinance – If you have paid off a majority of your mortgage, it may not be a good idea to refinance your loan. This is because when you take a mortgage, you are actually paying off the interest on the loan in the first few years of the loan. As you near loan completion, you then start paying off the principal amount. If you have already paid off about 66 percent of your loan, it’s not a good idea to refinance. Taking on a new loan at this juncture just means that you have started paying off the interest again, instead of building equity or ownership of your home. It’s also not a good idea to refinance your home if you are planning to move or if your lender has a hefty prepayment penalty fee in place.
Calcxml states that it is likely that mortgage rates will increase again by late 2014, but there is no need to panic. If you are planning to refinance your loan, it’s a good idea to do it right away rather wait for the rates to go lower. As this is a significant financial decision, you will want to put some legwork in before you commit to anything. Take the time to comparison shop with as many lenders as possible before you select one to refinance your loan with. However, make sure you apply to all new lenders within a 30-day period, since submitting multiple mortgage applications to many different lenders can result in a downgrading of your credit score. Applying within a 30-day period will ensure that your credit score remains stable. Find the best rates, a good lender, refinance your mortgage, and you can start saving on your mortgage.
Readers: Have you ever refinanced a loan? What was your experience like?