BY: Duke Maloney – Financial Analyst: iWantaBetterMortgage.Com
When Should you Refinance your Mortgage?
Have mortgage rates fallen as far as they’re going to? Do you expect them to go up? Has your credit score improved enough so that you might be eligible for a lower-rate mortgage? Would you like to switch into a different type of mortgage?
Refinancing your current mortgage can save you thousands of dollars. Consider that average interest rates on fixed-rate mortgages have ranged from less than 6 percent in the late 1990s to more than 18 percent in the early 1980s, and you can see that refinancing can result in significant savings for the homeowner. You would be hard pressed to find a better mortgage.
A rule of thumb is to refinance when interest rates drop 2 percentage points or more. For example, if you have a $100,000, 30-year, fixed-rate mortgage at 10 percent, you will pay more than $215,000 in interest over the next 30 years. But if you have a $100,000, 30-year, fixed-rate mortgage at 8 percent, you will pay less than $165,000 in interest over the same period.
How can you Shop for your new Mortgage Refinancing Loan?
Shopping around will help you get the best mortgage refinancing deal. Shopping, comparing, and negotiating may save you thousands of dollars. Begin by getting copies of your credit reports to make sure the information in them is accurate. Once you have verified your credit report, go to a website like iWantaBetterMortgage.Com. Sites like these offer customers a way to shop multiple mortgage lenders at one time.
iWantaBetterMortgage.Com Offers Refinancing Options.
You may want to convert an adjustable-rate mortgage (ARM) to a fixed-rate loan to gain stability in your monthly payments or in the event that interest rates drop faster than your ARM can accommodate. Many ARMs have caps limiting the amount of periodic adjustments. So, if interest rates drop 3 percentage points in a year but your ARM has a 2 percent annual cap, you may want to refinance to take full advantage of the new, low interest rates.
When interest rates drop, you can refinance your mortgage to take advantage of the new rates, getting either a new ARM or a fixed-rate mortgage at a lower rate. When you replace an old ARM with a new one, you generally reset your mortgage’s lifetime adjustment cap. For instance, if your old mortgage had a lifetime adjustment cap of 6 percent and the initial rate was 10 percent, your mortgage rate could go as high as 16 percent. If you replace your old mortgage with an ARM with a rate of 8 percent and a lifetime adjustment cap of 6 percent, your mortgage interest rate will never go higher than 14 percent.
What Are the Disadvantages of Mortgage Refinancing?
Besides the costs of refinancing, you may want to consider other potential disadvantages before signing on the dotted line. For example, if you cash out some of the equity in your home, you will own less of your home when the deal is done. And it may take you longer to own your home free and clear than if you had not refinanced.
Time is also a consideration when it comes to refinancing costs. How long will it take for your new interest savings to pay off the property appraisal, title insurance, and other costs? You may have to live in the house longer than you planned to make the refinance worthwhile. If you move before you have recouped the refinance costs, you will lose money on the deal.