Trying to make decisions about refinancing can be VERY TOUGH in today’s economy. However, there are several GOOD reasons to refinance your home, and we’re going to look at those.
1. A Lower Interest Rate- This is usually the most obvious reason to refinance your home. Switching from an 8 or 9% interest rate to 5% or under is an obvious savings over thirty years. This will also lower your payment, so you would be saving money.
2. Pay Off Higher Interest Rate Debt- Sometimes at closing you can take out extra cash to pay off higher rate debt such as credit cards or loans. While this should not be your only reason to refinance (unless this will help you avoid bankruptcy), it can help you get back on financial track. This is not the “best option,” but if it’s your only option, it can provide a necessary solution to a larger problem. However, you must STILL try to get help with your budget to avoid future high interest bills. Usually, the lender will set up the new mortgage so that you can skip a monthly mortgage payment, which is extra cash in your pocket unless you decide to put it toward closing.
3. Switching to a Fixed Rate- An adjustable rate mortgage can be very stressful, because of moves in the rates. A fixed rate mortgage provides a sense of security in knowing that your payment will stay the same. This is a very good reason to make the change, especially if interest rates are starting to creep up again.
4. Avoid Foreclosure- If refinancing helps you to avoid foreclosure, then it is advisable to do it so that you can keep your home. However, you MUST work to get back on a stable budget to avoid this happening again in the future. Lenders are often willing to work with families to help keep their homes, but only to a certain extent,so it is good to approach them early.
Tips:
1. Pick a good lender. Get the facts about your lending company and make sure they are on solid financial ground. Check out your lender to make sure they are not “sheisters” as my grandma used to call them!
2. Understand the different types of mortgages. We’re not going to get into all that here, but make sure you know the type of mortgage you want, and what will suit your needs the best.
3. Know the facts about PMI (Primary Mortgage Insurance) and decide if this is the route you want to go. You will be paying much more over the term of your loan (usually until you have 20% equity).
Why you SHOULDN’T Refinance-
1. If it’s not going to save you money in the long run, don’t do it!
2. Don’t use the cash to buy stupid stuff! (My layman’s terms)
Tools:
HUD has a GREAT site about refinancing!
Check out this Refinance Calculator!
Leave a Reply