A home mortgage refinance loan might be in your best interest. Let us help you find the answers to your questions. If you are a homeowner who was lucky enough to buy when mortgage
rates were low, you may have no interest in refinancing your present
loan. Perhaps you bought your home when rates were higher. Or perhaps
you have an adjustable rate loan and would like to obtain different
terms.
Should you refinance? This page will answer some questions that may
help you decide. If you do re finance, the process will remind you of
what you went through in obtaining the original mortgage. That's
because, in reality, refinancing a mortgage is simply taking out a new
mortgage. You will encounter many of the same procedures and the same
types of costs the second time around.
Refinancing can be worth while, but it does not make good financial
sense for everyone. A general rule is that refinancing becomes worth
your while if the current interest rate on your mortgage is at least two
percentage points higher than the prevailing market rate. This figure is
generally accepted as the safe margin when balancing the costs of
refinancing a mortgage against the savings.
There are other considerations, too. Such as how long you plan to
stay in the house. Most sources say it takes at least three years to
realize fully the savings from a lower interest rate, given the costs of
the re finance. (Depending on your loan amount and the particular
circumstances, however, you might choose to refinance a loan that is
only 1.5 percentage points higher then the current rate. You may even
find you could recoup the refinancing costs in a shorter time.)
Refinancing can be a good idea for homeowners who:
Want to take advantage of lower rates. This is a good idea only
if you intend to stay in the house long enough to make the
additional fees worthwhile.
Have an adjustable rate mortgage (ARM) and want a fixed-rate
loan, to have the certainty of knowing exactly what the mortgage
payment will be for the life of the loan.
Want to convert to an ARM with a lower interest rate or more
protective features (such as a better rate and payment caps) than
the ARM they currently have.
Want to build up equity more quickly by converting to a loan
with a shorter term.
Want to draw on the equity built up in their house to get cash
for a major purchase or for their children's education.
If you decide that a home refinance is not worth the costs, ask your
lender whether you may be able to obtain all or some of the new terms
you want by agreeing to a modification of your existing loan.
