Refinance Home Loans and Saving on Your Mortgage Payments

There are dozens of personal reasons why you could choose to refinance your existing mortgage. Among the top reasons why today’s home owners would want to switch to a new mortgage is to benefit from the effects of lower mortgage rates. Consider this: if the current mortgage rates have drastically declined since you had your first mortgage approved, refinancing your existing loan to avail of better rates can help you generate some savings by reducing your mortgage costs.

If you want to pursue refinance home loans, you definitely would want to consider other mortgage types. For instance, you could consider getting a home loan with a shorter mortgage term. If the mortgage term of your current loan is 30 years locked in fixed rate, you could opt to refinance and get a 10- to 20-year loan. Doing this allows you to save money because your interest payments will be down, aside from allowing you to settle your mortgage debt sooner.

If you have a variable rate loan, you can opt to refinance and switch to a fixed rate mortgage. This would allow you to relax knowing that there won’t be any changes in your mortgage payments throughout the whole fixed rate period. But if you have a fixed rate loan and you are planning to leave your house after a couple of years, you should definitely get a variable rate loan simply because of the low interest rates during the initial mortgage term.

Just like what you did when you bought your first home, you need to determine what kind of loan would be perfect for your current circumstance. Basically, this loan should allow you to live in your house without straining your budget.

But how exactly do you know if it’s worth it to refinance? To find out, you need to compute the total cost of refinancing. The answer will definitely tell you what to do next. You will be able to determine the period it will take to break-even. If you have no plans to leave your home or if you intend to stay until you break-even the mortgage costs, then you should definitely refinance and get another loan.

As a rule of thumb, the best time to refinance is when the interest rates go down by at least two points. But sometimes, even a 1 percentage point drop in rates could still afford you a relatively good deal. If you try to get a new lender, they might agree to a reduction of points or entirely waive off the application, title check and credit check fees.

One thing that could hamper your plans to refinance is the prepayment penalty from your existing mortgage. This, however, differs per state and per lender. Just try to clear this one up with your current lender before jumping into the refinance home loans bandwagon.

Crowin Smith - About Author:
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