Mortgage Refinancing Factors to Consider

Mortgage Refinancing Factors to Consider- 150x150Everyone has an idea about what mortgage refinancing entails. But, for those who don’t, here it is in a nut-shell. The mortgage refinancing process can provide a homeowner with a few cost-saving options to improve their cash flow, or make their current mortgage a little easier to manage. Homeowners can use cash from the new loan for various purposes or they can simply borrow enough to rewrite the first mortgage into one with much better terms. Here are a few factors to consider before making this option a reality.

Financial Motivations

The most important reason behind exploring the refinancing option and mortgage refinancing rates is to take advantage of current mortgage interest rates. A lower interest rate will have a dramatic effect on the monthly payment obligation, which can be a huge benefit to any household budget. Over time, this will also reduce the overall cost of the loan by a substantial amount. By doing a little math, you see that a $200 reduction in the monthly payment puts $24,000 dollars back into a homeowner’s budget over the course of just ten years.

Mortgage Type – Fixed or Adjustable

Another option in refinancing is to consider switching the type of mortgage loan to save money. In this case, an adjustable rate mortgage with a higher ‘adjusted’ rate can be re-worked as a fixed-rate mortgage to stabilize the monthly payments. On the other hand, an adjustable rate mortgage loan (ARM) usually begins with a much lower interest rate, which may work to the homeowner’s benefit in the short-term, if remaining in the home only until the rate ‘adjusts’ back up is part of the strategy.

Naturally, there are certain fees and closing costs to consider, but in some cases, a lender will offer the option of adding these costs into the new loan. Bear in mind, that closing costs for refinancing can be in the range of 3% to 5% of the loan amount. But if the lender of the original loan is willing to renegotiate, there are a few ways to cut down on the closing costs as well.

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