Posted by Matt on 28. August 2011 09:22
Refinancing mortgage rate is always a homeowner’s favorite option but the decision may not be always a good one. Proper sense of timing is crucial here to refinance your mortgage. Taking up multiple refinancing loans could actually mar the benefit of the program and increase the expense of the borrower. Homeowners may end up paying more in a streak of closing cost for each current mortgage. In some specific cases, it is wise to opt for mortgage refinance. But, other times, it is good to stay afloat with your current one.
Before taking any rash decision you must clarify yourself what this refinance is all about and why should you take one? When you take refinance, it doesn’t mean that your liability is over. The scheme is only designed to ease the burden of your existing loan either by reducing the interest rate or by extending the loan term. The idea of reducing interest rate is favored by many. But some homeowners prefer to extend the loan term up to 30 years which very naturally lowers their monthly payment amount.
Debt consolidation is another way for you. You can consolidate your first mortgage with home equity to get a fixed rate mortgage through out the loan term. Many homeowners take refinance because they want to get out of ARM (adjustable rate mortgage). When you are through an ARM, interest rate varies at different point of time. When Fed hikes the rate, debtors incur more interest rate. However, the difference between ARM and fixed interest mortgage is not greater at all. So, taking fixed rate mortgage is better than ARM.
Now, timing is important to understand what time is right to refinance you house. If you look at the statistics issued by Bankrate.com in 2008, the closing cost of $200,000 mortgage loan was $3,118.This cost however, didn’t include insurance and property taxes.
Before you refinance, you should have a comparative analysis between your current mortgage and your refinanced mortgage. Your goal is to make your loan an affordable one.