Benefits to Refinancing your Home
Refinancing your home is a great way to reduce your monthly mortgage payment. You can also use the equity in your home to consolidate debts with high interest rates or borrow cash.
Another reason to refinance is if you entered into an adjustable-rate mortgage sometime back and the rate is going up. Maybe you had planned on selling by now and paying off the mortgage. In either case, it may be time to consider refinancing to get a fixed or lower rate.
Some people refinance to borrow money for college tuition or to make improvements to their home. The reason you’re refinancing and the costs of refinancing should be carefully considered.
Factors to Consider
If you are planning to refinance, there are several factors to consider; current market interest rates compared to your loan interest rate and the time it will take to recoup the costs of refinancing.
As a rule of thumb, whenever interest rates fall more than 2 points below your existing mortgage rate you’re in good shape to refinance. Anything less would not be worth your while with closing costs, origination fees and other expenses associated with refinancing.
For some homeowners, the 2 percent rule is not important; they are focused on the time needed to break even on the cost of refinancing. If their total costs were $3,000 and their monthly mortgage payment is reduced by $90, it would take nearly 3 years for the savings to cover the costs.
Some loans allow borrowers to roll the closing cost into the new loan rather than paying out of pocket. When considering this option, be sure to calculate the savings against the expense of paying off a higher balance.
Refinancing typically lengthens the time it takes to pay off your home. If you are already 5 years into your 30-year mortgage and you refinance with a new 30-year loan the total number of years you will be making payments will be 35.
There are many good reasons people borrow against the equity in their homes. It is a good idea to become educated; speak with several lenders before making a decision. Ask questions about expenses and fees, benefits and savings, terms of the new mortgage. The more you educate yourself the better your chances are of finding the right refinancing package.
Mark Goedert of Goedert Real Estate has been working with first-time home buyers for over 50 years. He uses the latest news and techniques to service buyers at all levels, from new home owners to seasoned real estate investors. Mark Goedert serves clients in the Down River area, Calhoun, Hillsdale, Ingham, Jackson, Lenawee, Livingston, Macomb, Monroe, Oakland, Washtenaw, Wayne and South Eastern Michigan Cities and Counties.
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