Article from Massachusetts Real Estate News, Refinancing a Mortgage
Reducing your interest rate
When interest rates are at record lows it creates an environment that is ripe for refinancing a home mortgage. There is no question that a mortgage on a home is usually one of the largest financial obligations that you will have in your life.
It stands to reason that if you can cut your interest rate you will save a bundle of money of the life of the loan. Besides reducing an interest rate there are a number of other reasons to consider refinancing a mortgage.
Changing your mortgage term
When a home owner refinances most of the time it is because they able to get an attractive interest rate. One of the considerations when rates are really favorable is the ability to also cut the mortgage time substantially for the loan and not have your payments change all that drastically. You could have the term of your mortgage go from 30 years down to 15 or 20 years and in the process not only will you be cutting time off the loan but also decreasing your interest costs. When cutting the term of your mortgage you will also be building equity in the property much faster because more of your payment will be going toward the principal instead of interest.
If you look at a 30 year mortgage it is incredible to see how much money you are actually paying the lender in the early stages of the loan. It is enough to make your head spin. Going to a shorter term mortgage saves an incredible amount of interest!
There is also the possibility you may have started with a 15 year loan and now realize that it is difficult to make the payments every month as well as keep up with the rest of your bills. If this is the case going from a 15 year mortgage to a 30 year mortgage may make financial sense. See getting the best mortgage home loan program for considerations on which loan product may suit your needs best.
Taking out cash
There are times in life where something unexpected may occur and you may really need some money badly. You may not want to cash out of other investments such as stocks or CD’s due to penalties or tax ramifications. Refinancing a mortgage can sometimes be the a great alternative especially if money is cheap.
A cash out refinance could also make sense if you want to make an improvement on your home but don’t want to take out a home equity loan creating a 2nd mortgage on the property. Maybe you want to purchase a new vehicle and would rather not finance it from another lending source. These are all reasons that make sense for a cash out refinance. Just make sure you don’t blow this money and put yourself into a financial hole.
Changing from an adjustable rate to a fixed rate mortgage
Sometimes when a borrower purchases a home they can’t qualify without going with an adjustable rate mortgage which typically offer lower rates than a longer term mortgage. If you can grab at the chance for additional security of locking in a great long term interest rate why not!
Often times when buying a home the borrower may opt to go with an adjustable rate mortgage if they feel they will not be staying in the same home that long. If circumstances change and you feel you will be staying put going to a fixed rate with long term emotional and financial security may be of great benefit.
Going through a divorce
Divorce of course is something that most people don’t plan for but can become an unfortunate circumstance of ones life. There is always the possibility that one of the spouses will keep the home and the other could be bought out of the property. If this happens to be the case a refinancing is a solution to get the property into one mortgage holders name. The other spouse gets the cash from the refinance.
There is quite a bit to think about when going through a divorce. See divorce and selling Real Estate for a summary of some of the things to consider.
Consolidation of two mortgages
If you read the newspaper or watch the news and are hearing that interest rates have become very attractive one of the things you may want to consider if you have a home equity loan or other 2nd mortgage to refinance into one loan. Not only is it more convenient to get one statement from one lender every month but you will more than likely get a better rate with one lender.
As a Realtor who has been practicing Real Estate for almost twenty five years and being associated with the mortgage industry, I can tell you with certainty that it makes sense to shop around and speak with a few lenders. You need to be careful not to just shop the interest rate but the whole package including the points you will be charged and the closings costs. While one lenders rate may look great on the surface it could be because there are higher fees or points attached. Above all else do your home work!
Published by Massachusetts Real Estate Blog