HOW MUCH? - mortgage refinancing

Mortgage refinancing. Tips for getting a new home loan.


Why should you refinance a home loan.

Refinancing a mortgage is essentially getting a new home loan. People refinance their home loans for one main reason – to save money. There are three major ways of saving money through refinancing a mortgage.

  • Refinancing to get a lower interest rate on a home loan results in lowering a monthly payment.
    This option is available to most home owners who have been paying their home loan for at least a year, thus improving their credit score significantly.
  • Refinancing to obtain different terms of the loan.
    If you refinance a 30 year loan with a 20 year mortgage, the total amount paid over the years will be a lot less, since the number of payments is reduced to 240. This option saves money over the life of the home loan, but results in usually higher monthly payments.
  • People also refinance home loans to pay off their debt.
    This money becomes part of a mortgage, and interest on mortgages is tax deductible.
    Paying off credit card debt, car loans, student loans and other debt through a home loan is a great way of saving money on federal taxes.

Stability of a fixed interest mortgage versus an adjustable home loan.

When interest rates are higher, people prefer adjustable home loans, since they usually have lower monthly payments. When interest rates are lower, most home owners prefer fixed interest home loans. For some potential home buyers, fixed loans are not available, and their only option is an adjustable mortgage, but once their credit score improves by making payments on time, they are in a position to refinance their loan. Fixed interest rate mortgages offer some stability to home owners, since the loan payment is the same every month.

Mortgage Refinance Application
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Are the costs of home loan refinancing more than the savings?

Mortgage brokers will often advise to refinance a home loan if the savings are 2% or more, but it all depends of the particular situation of the home owner. The savings made by lowering a loan payment will pay for the costs of refinancing over time. In order to save money, one must keep the house beyond the time it takes to pay back the fees to refinance. For example, if refinancing a home loan results in savings of $150 a month, and the total cost of getting a new home loan costs $2250; you break even in 18 months and start saving after that.

See also: home buying mistakes, home refinancing, equity line of credit, comparing home loans, home insurance, private mortgage insurance




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