Mortgage Rates Are Low - Should I Refinance?
At the surface, it seems a very easy question and with an equally easy answer. YES!
But it is not that simple. Decision to refinance a mortgage or not, would depend upon many factors; not only that in some cases, refinancing may not be the better option, even when the rates are lower than your current mortgage rate.
Refinance Mortgage: Right Time to Consider
Most of the time, refinancing of a mortgage is considered because lower interest rate will reduce the interest expense of the mortgage.
Before deciding about this, one needs to decide the goals
-what do you want to accomplish.
If you are already locked in a mortgage which you cannot pay off early, refinancing option may be off the table. In other cases, where the lender may allow you to pay off the current mortgage early, the penalty of prepayment may be either too large an amount that either you will lose money or the real benefit is reduced to an insignificant amount for the time, labour and money involved.
Don't Refinance for Locked in Mortgage
Many times the interest rates are lower for a mortgage but only available on a long term locked in mortgage. If you are considering to move and sell, then refinancing may not be the option because locked in mortgage either will dissuade the potential buyers from buying your home or may involve heavy penalties to retire the mortgage if the buyer wants to pay cash or arrange his own mortgage.
Refinancing a Home Mortgage
Refinancing a home mortgage may be the option to consider if debt consolidation will reduce your interest expense and also your monthly payments. Lower monthly payments are very attractive for those who are struggling with high expenses and high monthly payments on the mortgage. Credit card loans, car loans, personal loans can be combined and refinanced with a single lower interest mortgage against the house. This, however, can only be done when there is enough equity in the house and you qualify for the higher mortgage amount. Lower payments will stretch out the time that will take to pay off the loans, as personal loans and car loans are normally amortized over a much shorter time than the mortgage. One should also keep in mind that consolidating loans and refinancing the mortgage will convert your current unsecured loans to a secure mortgage loan thus putting your real estate at risk if you default in making payments.
Variable Mortgage with Higher Interest Rates
If you are currently having a variable mortgage and the higher interest rates are looming upon the horizon, locking in to a fixed rate and refinancing the house is a good step to a worry free mortgage financing. If you plan to be in the house for several years, and the interest rates are low, locking in the interest rate for a longer term could save several thousand dollars.
Refinancing would involve mortgage prepayment expenses, legal expenses and other related expenses that must be paid to refinance the mortgage. All costs should be added and offset against the lower interest cost to make sure that there is a net benefit when mortgage is refinanced. There are calculators available that can easily answer these questions or your mortgage lender should be able to provide you with answers so that you can make an intelligent and calculated decision.
Summarizing, refinancing a mortgage with a lower interest rate mortgage can save money, however, this option needs to be carefully evaluated and as shown above may not be the right option in very many cases.
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