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Why refinance: how to know when

By Trulia | Published: Oct 14, 2009 | 17 Comments

Refinancing is most often motivated by lower interest rates, which can bring the dual benefit of lower mortgage payments and lower interest costs over time. But there are many other legitimate motivations. Some are a product of "creative" financing products such as Adjustable Rate Mortgages that were rare a generation ago. Your personal priorities will drive decisions on how to refinance. There is no "one-size-fits-all" solution, but here are a few reasons why you might want to refi.

Lower payments: When rates fall, it's always tempting to refi. A common rule of thumb is that a two-point drop in rates will make it worthwhile. But this is not universal. For a homeowner with a $300,000 balance, a rate reduction of even one percent can lower the monthly payments by a couple hundred bucks and cut long-term interest expenses by hundreds of thousands.

A common mistake with this strategy, however, is to "start over," and refinance, a 17-year-obligation with a new 30-year loan. Sure, stretching out the term will lower the payments, but wasn't the interest rate help enough for you? Don't be greedy. When you choose the term of a new loan, think about some day getting out of debt.

A quicker payoff: This is often a worthy goal, if you can afford somewhat higher payments. Replace a 30-year-term with 15 years, and obviously you'll be out of debt sooner - and won't have to double your payments to do it. They'll rise by about 40 percent (assuming here that both loans are at about 6 percent interest). Conversely, choose the ease of a 30-year term and the payments will go down a lot less than you'd expect.

Lower interest costs: Locking in a better fixed rate is great, but it is not the only way to lower interest bills. ARMs, or Adjustable Rate Mortgages, generally offer lower rates in the early years followed by higher ones later. It can be a fool's game to think you can defer your big bills until later in life, but if you plan to be in the house for just a few years or less, an ARM may make a lot of sense.

Cash out: Liquidating the equity in a home became a national pastime in the last housing boom. Creative loan products and rapidly rising home values often made it easy to refi (at a lower rate if you were lucky) and walk away with a satchel full of cash. Taking cash out of your mortgage can be an entirely legitimate way to consolidate other debts. The downside was that gains in equity were in some cases an illusion, driven by a housing market bubble - and this way, you'll never be able to pay off the property.

Comments

By Javier Rodriguez,  Sun Jan 31 2010, 15:25
Great article on refinancing. The best advise I give my clients when considering refinancing is to schedule a consultation with a mortgage professional to go over your options. The numbers explain it all. When viewing what your new interest rate or mortgage payment will be..... it will be clear if its worth it to refinance. Dont spend endless hours by reading off the internet. A knowledgeable mortgage professional in minutes over the phone can tell you what your new payment and interest rate would be with todays rates. To receive a free quote I can be reached at 305-774-1185. Now is a great time with todays low fixed interest rates..you may want to look at options to lower your mortgage payment, take cash out for home improvements or to payoff high interest rate credit cards, or maybe to go from a 30 year loan to a 15 year loan! My company website is http://www.leonmortgage.com.
By Alina Kanevsky,  Fri Feb 19 2010, 13:23
Great article on why when people should inquire regarding refinancing their property. I always tell my clients that there are key things i look for such as at least 5% mortgage payment decrease, changing the type of loan you have to a more secured loan and/ or changing the term of your loan to a lower or higher length in years depending on your situation and what your trying to accomplish, and lastly putting yourself in a better financial situation by paying of unsecured debt through refinancing your property to get a much lower rate on all the liabilities one holds. In the end each person's situation in unique and i try to customize the situation to the borrower's goals to make sure there is a benefit in refinancing. Right now with the rates being at record lows its a great time for people to explorer their refinancing options. If your interesting in getting a quote in PA, NJ, and De then please feel free to contact me for a free consultation.
Thank you,

Alina Kanevsky
Lending Specialist

Strategic Funding
405 Kings Highway South
Cherry Hill, NJ, 08034
Phone: 856-429-2858 ext. 12
Fax: 856-429-4118
Cell: 267-474-8050
By Geoffrey Boyd,  Sat Jun 5 2010, 08:07
What I tell my clients is that you wnt to compare your savings to your overall cost of the refinance. Don't become too focussed on rates, as this could cause you to overpay for the refinance or miss a great savings opportunity. Zero fee loans are a great way to save money without adding too much onto the balance of your loan. Misleading TV & radio commercials have given people the idea that rate is th only thing to consider when refinancing, when there are many things to consider: plans to own the home, plans for retirement, future plans for the property, tax impacts, etc. If anyone has questions or needs a quick analysis, feel free to go to our website at: http://www.geoffboyd.com
By Acooshe,  Mon Sep 27 2010, 14:08
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By Rinti Saha,  Mon Oct 4 2010, 16:41
Great article. Refinance home mortgage loan is always a hot favorite among homeowners for its low interest rate in replace of a high interest home loan. You have to consider a few things before applying for refinancing and you must have to find out the best Mortgage Refinance Rates. You may find a one page handsome description of all these things at:http://www.refinancehomemortgageloan.net. Check it without delay and you will be amazed !!!
By Mortgage Reel,  Thu Mar 31 2011, 15:01
Great read, Here is a link to a video we created that is on Trulia as well. Learn how to calculate your breakeven point: http://www.themortgagereel.com/time-refinance-mortgage/

Any questions please ask!
Thanks
By Sars,  Thu Nov 3 2011, 04:25
Great oportunity, now seems to be a time to refinance with easier lending standards, the revision to Obama's Home Affordable Refinance Program (HARP) will encourage more homeowners,,,homeowners who are current on their mortgages, and who have lost home equity, will get a chance to refinance at today’s low mortgage rates.Look at the mortgage professional site http://www.mortgagerefinance.com/ and find out the best Mortgage Refinance Rates and why the time is ideal for refinancing http://www.mortgagerefinance.com/Mortgage-Rates/How-Will-Falling-Rates-Impact-the-New-HARP-Program/289
By Shawn Rosa,  Tue Dec 13 2011, 13:48
refi when current rate drops 1% or more below your own rate
By Andy Matejka,  Mon Dec 26 2011, 06:32
IN THIS low interest rate environment, one can save enough money to justify refinancing if your rate changes by as little as .5% if your principle balance is above $100k and your current amortization schedule is 30 yrs.

Individual results may vary but it pays to understand the power of the amortization schedule.
By Paul Fenelli,  Wed Jan 4 2012, 19:24
After you get a reverse mortgage, sometime in the future you may be able to increase the loan funds available to you by refinancing the loan. Large increases in your home's value, increases in HUD's home value limit (currently $625,500), or lower interest rates could make this possible.
When you refinance a HECM, lenders are required to show you the total cost of refinancing, and compare it to the increase in available loan funds that a refinance would provide. If you're looking for more information on reverse mortgage, feel free to visit http://www.reversemortgagelendersdirect.com
By Brian VerBurg,  Thu Apr 12 2012, 20:19
Refinance when it makes financial sense. It usually costs money to refinance and that is why people put a certain number on the rate savings that must be achieved, but if its a no cost loan, meaning all the closing costs are paid for you, then saving even a quarter percent is worth while. If you have to pay closing costs then take the amount you will have to pay, divided by the monthly savings you will get and that gives your breakeven point in months. If you plan to be in your home for many years and the break even point is less then 24 months, then it obiously makes sense to do the refi.
By Steve A Lender,  Wed Apr 25 2012, 10:45
When considering refinancing a property you always have to take into account your short and long term goals. This is especially important today and using your mortgage as a vehicle to fund other items such as buying a 2nd home, investment property or maybe preparing to pay for college should all be taken into consideration when evaluating a new mortgage. After 24 years of helping clients with their mortgage needs, a finiancial planning aspect has to be taken when making recommendations to a client. And for those who owe more on their home that it is worth, there is a new program called HARP 2.0 that allows homeowners to refinance if their mortgage is held by fannie mae or freddie mac, the mortgage was taken out May 2009 or later, regardless of the LTV (Loan to Value) and it does not have to be owner occupied. If you own a California property and are upside down and would like to see if you qualify for this program, give me a call for your FREE home mortgage consultation. On the web at http://www.Alender.com
By Matie,  Wed Jul 18 2012, 02:28
Great article. Refinance home mortgage loan is always a hot favorite among homeowners for its low interest rate in replace of a high interest home loan. You have to consider a few things before applying for refinancing and you must have to find out the best Mortgage Refinance Rates.

http://www.indexpost.com/
By opondomusa,  Wed Oct 31 2012, 09:56
Great tips on why refinance.
More on this:

http://www.realtypin.com/news/story/622-is-it-time-to-refinance-your-mortgage
By Chris Jastrzebski,  Mon Nov 26 2012, 22:50
For seniors, aged 62+, sometimes it's easier to do a reverse mortgage. It can help alleviated the added stress of qualifying for income on a first or second mortgage. Learn more at http://www.reversemortgagela.com
By Mona Koussa-Listing Agent,  Thu Oct 31 2013, 11:47
With so many home owners remodeling their homes, refinancing makes the most sense. http://www.ehomesurf.com/blog
By Kobe,  Fri Jan 3 2014, 04:56
If you know that you can manage your finance further ahead then you should certainly go for refinance. It is a solution that curtails your interest rates to minimum so that one can easily make the further payments. Well can make out with this video: http://www.youtube.com/watch?v=PrEMnKY-1JA where one can even pick up some legit company and information about right time.

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