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 Refinance
or not? The purpose of a refinancing loan (as opposed to a home equity loan)
is to pay off your current mortgage with a new loan at a lower rate and/or with a shorter term of repayment. Some
homeowners don't consider refinancing their mortgage because they fear that it may be too much of an aggravation
for the money they may save. Other homeowners simply get into the habit of paying their mortgage payment every
month and simply do not consider refinancing.
A general rule of thumb is that if the available interest rate is 2% less than your current rate, it is almost
certainly a good idea to consider refinancing. Your own situation, though, may be different. You may want to reduce
your term as well as your interest rate, or, getting a reduction in your monthly payment may be your main motivation.
Online resources.
The advent of online lenders over the past few years has made it much easier to make the decision to refinance
your mortgage. Most online lenders provide a variety of calculators and worksheets that will help you make your
decision. For example, LendingTree has a refinancing calculator.
Comparing Online Refinancing Sources
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Source
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Apply Online?
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Competing Offers?
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Quicken
Loans
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Yes
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Yes
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Hints on Refinancing Loans
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H
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N
T
S
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Be wary of the 125% of value loans.
These loans can be a ticking time bomb that may take you years to get out from under. You are borrowing 25% more
cash than your home is worth. If your home does not appreciate significantly by the time you want or need to sell
it, you will be forced to write a check for the shortage. |
| Lower interest rates.
If you are still sitting with a high interest rate mortgage, get out and refinance now. Rates are still considerably
below the average for the last 20 years. |
| Length of time in your home. If
you are planning to stay in your home for 7 years or more, it may make sense to refinance with a loan that has
a lower interest rate and points, rather than a higher rate with no points. |
| Consider a 15 year term.
Depending on the interest rate available and how much principal is remaining on your existing loan, it may be possible
to both maintain a similar payment AND reduce your term to only 15 years. |
| Refinance or Home Equity?
Depending on your needs, you may want to consider a home equity loan. If your current mortgage is at acceptable
rate and term, but you need cash for a specific need, consider a home equity loan instead. |
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