Refinancing Your Home

If you are looking for a way to regain control of your debt, you might be interested in refinancing your mortgage. Refinancing your mortgage can help you reduce your debt by replacing a current loan with a new one. Refinancing is done for a number of reasons including: attaining a lower interest rate; paying off a mortgage in shorter period of time; consolidating debt or gaining access to your home equity to make a large purchase. However, before you decide that refinancing is for you, ask yourself some basic questions: What are the current interest rates? How long will I live in this house? Will I save money by refinancing? Have I checked out all other options?

Advantages of Refinancing

Lower Interest Rate
Nowadays, many banks will advise you that getting a 1% savings on your interest rate is sufficient reason to refinance your mortgage. When you reduce your interest rates, you save money, build equity in your home and reduce your monthly payment.

Decreasing the Loan’s Term
For only slightly higher monthly payments, you can refinance a loan for a shorter loan that will take less time to pay off. For example, if you were on a 30 year fixed rate mortgage for a $70,000 home, refinancing from 6.3% to 5.5% interest rate and a 15 year term would only cost about $60 dollars more a month.

A More Affordable Mortgage
Many people use 30-year fixed rate mortgages because a longer time period results in smaller monthly payments. However, if you are planning to only stay in your home for a few years and interest rates are currently falling, it would be worth it to switch to an adjustable-rate mortgage. At lower interest rates, a homeowner can reduce the interest rate on their loan and how much they pay every month. However, if interest rates are higher and you plan to live in your house for at least 10 years, switching to another plan may not be worth your while.

Disadvantages of Refinancing

Consolidate Debt
You may choose to consolidate your debt in order to pay for a large purchase such as a new car, college tuition or a home remodeling project. While mortgage refinancing will initially give you more credit, if you do not handle it wisely, you could lose the equity in your house, have more interest payments for a longer period of time and have high-interest debt.

Costs of Refinancing
There are several types of fees associated with refinancing your mortgage: application fee, title search and title insurance fees. Depending on the size of your home, these fees can range in price from hundreds to thousands of dollars. You need to pay these fees to have your house appraised, to guarantee you are the rightful owner of your home, to have your credit history checked and to insure the bank against fraud and other mistakes that could be made in the process of refinancing.

Overall, refinancing could be a viable solution to your debt problems if you are willing to make a commitment to financial prudence. It is important to remember your long-term goals when it comes to property investment. You need to know how long you are willing to be in debt and how long you plan to live in your home, as this will definitely affect your decision to refinance your mortgage.