It is indeed an undeniably smart and practical decision to refinance your home loan. With traditional home mortgage rates dropping yet again, it sure is high time to get a home refinance mortgage loan. The terms and conditions as well as the inherent features of mortgage refinancing are certainly appealing to millions of homeowners, but can this option really assist you in attaining financial freedom? Our goal is to enlighten you about the basics of home mortgage refinancing so you can optimize its many benefits and avoid common pitfalls along the way too.
What is Home Refinancing?
In essence, when you decide to refinance your home you are intent on paying off your primary or existing mortgage loan in order to take out a new one. Home refinancing may also mean that a homeowner agrees to combine both first mortgage and second mortgage into a new loan. There are a variety of reasons why homeowners should consider refinancing. However, using the funds responsibly is yet another matter that people should consider as well. Your ultimate goal in applying for a home refinance mortgage loan is to earn savings. If this goal is not achieved in any way, there simply is no reason for you to opt for a home refinance loan altogether.
• A home refinance mortgage should be able to reduce your monthly payments
There are however tradeoffs when you are looking at this feature as your main motivation of refinancing. Longer payment term, adjustable rate mortgage, and interest only loans are some pitfalls that you may encounter when refinancing. Make sure to check out the best package deals prior to signing off on a second mortgage.
• Lower Interest Rates
One key motivator which engages people to seriously consider refinancing is the lower interest rates. It is worth noting that refinancing is ideal when you can lower down the interest rate by at least 2%. Majority of lenders agree to a 1% reduction on interest as this will significantly reduce the mortgage loan amount of a homeowner’s second mortgage. Another great benefit of finding a home refinance mortgage loan with lowered interest rates is that it increases home equity as well.
• Shortened Term of the Loan
Refinancing should be a major consideration when interest rates fall. Although there wouldn’t be that much difference in the monthly payments, the shorter term will enable homeowners to pay off the entire amount of the loan earlier than originally planned, thus providing them with the option of investing on other valuable properties a swell. By picking carefully between mortgage companies, a homeowner can succeed in reducing the loan term in half while making sure the monthly mortgage payment only experiences a slight increase.
• Ensure Reasonable Interest Rates for Long Term Investment
If you decide on living in your home for 15 years or longer, shifting from a traditional, adjustable-rate mortgage to a fixed-rate mortgage is rather sensible overtime. The adjustments that are made on the interest rates of ARM mortgage on a periodic basis often result in higher interest rates when compared alongside the rates that are made available through a fixed-rate mortgage loan.
With a second mortgage that features a fixed interest rate, homeowners need not worry about interest rate hikes that may occur in the future.
• Cash Equity for Cash and Debt Consolidation
Homeowners use the equity on their first mortgage for extra cash that they can use to pay off some crucial expenses such as credit card debts or home remodeling projects. But before cashing in on your home equity, make sure that your reasons for refinancing is valid and that you will be utilizing the cash wisely, thus ultimately reducing the amount of debt under your name.
Steps in Finding the Best Home Refinance Mortgage Rate
There really is no such thing as a best mortgage rate as situations vary from one homeowner to another. You will always have to sacrifice one element over another to arrive at a home refinance mortgage rate that best fits your needs.
• Always identify your reason for refinancing. You need to cross out at least three out of the five reasons for home refinancing mentioned above.. Cashing in on your home equity to pay for credit card debt is ideal. However if you will only be using your line of credit in the same irresponsible manner as before, you will only find yourself suffering from the same financial difficulty after a few months of paying off your outstanding debts.
• Identify how many months or years you intend on living at your home. Your response to this question will ultimately lead you in choosing which home refinancing mortgage rate will work best to your situation.
• It is ideal to shop your first mortgage with a few lenders and real estate brokers. Before making a decision, experts recommend that homeowners talk to at least three to five companies. For comparison, homeowners should ask for various scenarios so you can decide with all factors explained and seriously considered.
• Identify the closing costs when refinancing your home. An expensive closing totally negates getting your home refinanced in the first place.
• Check with your bank if they can offer you a great deal on your mortgage. It is recommended to get quotes from several mortgage companies, but if your bank offers an appealing deal and you know to yourself that it’s easy and convenient to deal with your original lender, then by all means, get your home refinanced by them as well.
• Increase your down payment. Homeowners who get a home refinance get the best deals when they agree to put a 20% of equity cushion. This may seem expensive initially, but it will undeniably save you a lot of money on the long haul.