Either you need money now or there wouldn’t be much of it flowing in the near future. The answer we hear is mortgage refinancing. What questions should you be thinking?
The reasons for it these days can be summed up in these two situations. But before you go through with it, these 4 important questions should be the cornerstones of your decision. Ask yourself.
Will you save up?
Okay, the real deal about the boom in mortgage refinancing today is about realistically meeting up with your obligations. This is by getting a lower interest in the new mortgage term and/or reducing the periods where you have to pay.
However, look out for closing and transaction fees that usually come with mortgage refinancing. Make sure that these fees are less than the savings you ought to get with refinancing the loan.
Are we staying?
The obvious question is: are you moving out in the near future or planning to stay a lot longer? Better get a fixed rate if you are planning to stay 5, 10, 15 years.
Also, choose the shorter length of the fixed rate you can find. You may yield a lot more savings that way because interests are of course, lesser than that of the longer-term rates.
Your current debt and cash flow should also be included in your plans. Work the calculations up with a partner and do not be afraid to ask the lender questions. It is your money after all.
Do I have the best rate?
Shop around, know what is out there. Study the available rates that work in accord to with your plans. Many fail to consider the different options that could have very well worked for them. Be picky. You’re entitled to it.
Get this: some refinanced loans have a higher up front cost, so your plan should be able to make room for that. The rule of thumb is that if you can afford the cash right now, go for it. Remember to never roll your up front fees to your debts. If your closing fees can be recovered in 12 to 16 days, then consider the move brilliant.
Loans with lower initial payments on the other hand, and like those with unfixed rates, may give you a bigger total interest cost over the life of the loan. If you are planning to stay just for a year or two, then varying rates will not affect you as much.
Compare rates and calculate expenses, or you may be exposed to more risks than you what you are trying to reduce. If the closing rate is not what you have calculated it to be, then better think twice.
Should I really take out that equity?
Credibility. Mortgage refinancing long-term with a fixed rate improves your image and standing as a borrower, not to mention the difficulty you might encounter with varying rates down the road.
The other side of the coin is credit rating. Paying it back in the shortest duration of time earns you a higher credit rating, which can help you in the future.
Also remember that taking out home equity and using that to pay for unsecured debt almost always paints a bad picture. It makes much more sense to take out a loan rather than put your home at risk. If you can’t pay the mortgage, they can take your home; if you can’t pay the credit card companies, you still have it.
If you have satisfactory answers to these four important questions, then you might very well be supported in your plan of mortgage refinancing. Guarding yourself from risk and mistakes through research now will pay off beautifully in the long run.