Tips On Refinancing Your Mortgage



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Refinancing is also known as second mortgage.  When you are refinancing your mortgage, you are taking a second mortgage on your home.

 

Why refinance your mortgage?
The two prime reasons to opt for refinancing are:

  1. The interest rate on your home drops down and becomes lower.  The money thus saved can be utilized in other areas of your needs and requirements.
  2. You need money to clear your medical bills, credit card dues, student loans, other debts, or for some personal purpose.

 

Three Expert Tips

·         Tip #1.  Be aware of the timing.  The timing of refinancing can make a significant impact on the amount you pay due to the fluctuation of the interest rate market.  Usually the best time to refinance is when the market percentage falls 2% to 3% below the prevailing interest rate that you are paying on your home.  You save money due to the difference in the interest rates.  For example, if you have mortgaged your home at $400,000, at an interest rate of 7%, spread over a period of twenty years, then you are currently paying $3,101 per month against the mortgage availed.  Now, if the market percentage falls by 3%, then the interest rate stands at 7% minus 3%, that is 4%.  If you take a second mortgage now at an interest rate of 4%, then you would be paying $2,218 per month thereby saving $3,101 minus $2,218, that is $883 every month.  If the period of the mortgage were increased to thirty years, then you would be paying only $1,686 per month.

 

·         Tip#2.  Are you a short-term or a long-term resident?  Decide whether you would like to stay in your home for a long-term of twenty or thirty years or you would shift to another place in five to ten years.  If you plan to stay for long-term then you should opt for fixed interest rates while refinancing your home.  A fixed interest rate is decided at the time of refinancing and it is not affected by market fluctuations, hence does not increase or decrease.  However, if you want to stay for a short-term then you should opt for adjustable interest rates while refinancing your home.  Adjustable interest rates are affected by market rate fluctuations and can increase or decrease accordingly.  You may take advantage of the decreasing market trend and thereby save money.  However, an inherent risk accompanies adjustable interest rates due to its fluctuating nature.

 

·      Tip#3.  Take an informed decision.  Do your research before opting for refinancing.  You must be aware of all the pros and cons of refinancing.  There are many lenders like banks, financial institutions, and private firms.  You should consult them and ponder on their offers and suggestions.  You may also ask colleagues, friends, or relatives who have already taken refinancing, to get a better view of the entire picture.  Another excellent resource for research is the Internet.  All the reputable firms have an online presence and you can visit their websites for detailed information.  Internet surfing can save time and energy, since you do not have to physically travel from office to office for obtaining details about refinancing.  Most of the reputable online lenders provide free consultation; have online mortgage calculators that can be used to arrive at your expected monthly payments.  You can also telephone them at their toll free numbers for any clarifications, if you so desire.  Online research also makes it easier to compare the rates of different lenders.