Finding The Right Time To Refinance|
by Zoe Tiga
Can you recognize the right time to refinance your mortgage
loan? To help identify the right time, some people rely on
the "down two points" rule of thumb where their current
interest rate is at least two points above the going rate.
This rule doesn't always work for every homeowner. Instead,
your decision to refinance - which means "to take out a new
mortgage loan to pay off an existing mortgage" - should
benefit your circumstance before you make this move.
A refinance loan belongs to the family of second mortgages.
By refinancing your initial loan, you borrow money through a
second loan that pays off the original mortgage. Then, you
restart paying the mortgage amount through the refinance
loan. The main objective of refinancing is to achieve a
lower interest rate and hence a lower monthly mortgage
payment and overall repayment amount. Some people approach
this new loan with the intent to use built up equity toward
other reasons than to reapply to their mortgage. Equity -
the paid off portion of the mortgage loan - is cashed out at
closing on a refinanced loan or upon selling your mortgage.
Some common ways that people apply this cashed out equity is
by financing down payments toward vacation homes or to
afford retiring. Using this cashed out equity for any other
reason must be done very carefully. Some experts suggest
reapplying this cashed out equity back into the refinanced
mortgage. This approach allows you to recoup your financial
losses incurred by refinancing.
A refinanced loan can feel like a gift from heaven since the
lowered monthly costs can help you gain access to savings
that can pay off other monthly expenses. You usually have
to dip into your existing equity to cover refinancing
related closing costs and fees. However, many people find
that they can recoup this loss fairly quickly. Since a
lower interest rate equates to a lower monthly mortgage
payment, wise homeowners will apply this savings in the
refinanced loan. In many situations, refinancing can
actually trim thousands off your repayment loan and hundreds
off your monthly mortgage payment due to a lower interest
rate. This saving can mean a lot to someone who's
struggling to meet monthly payments.
A convenient way to quickly estimate your savings by
refinancing at a lower rate is with an online refinance
calculator. These handy tools also enable a homeowner to
see how paying their current monthly amount on a refinanced
loan will actually decrease the refinanced loan even faster
and build up equity quicker. Many times, homeowners prefer
to use their freed savings toward home improvement projects.
If a project actually improves the value of the home, then
this application of "cash out" equity or monthly savings is
a wise choice. Granted, home improvement projects benefit
your lifestyle; however, these improvements result in a
higher value on your selling price and more equity out of
the sold loan.
The right time to decide to refinance is after researching
information online at a reliable real estate's website.
Then, before making any final decisions, seek solid advise
from a trustworthy agent who understands your mortgage loan
and your reasons behind refinancing.
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