subject: The Benefits To Refinancing A Mortgage In The Current Rate Market [print this page] With mortgage loan rates falling to all time lows, several homeowners are wondering if refinancing their mortgage loan is a good idea. Obviously, there are many reasons to consider a home refinance, especially with loan rates so low. Some of the reasons to consider a home refinance are reduce monthly payment, reduce interest rate, get extra cash, change loan term and go from an adjustable rate loan to a fixed rate loan.
Loan Rates At All Time Lows
Today's market has caused home loan rates to drop to historic lows making this a great time to think about a home refinance. As long as there is a benefit to the new home loan, now is a great time to refinance your home loan. There are several opportunities to save thousands of dollars in today's loan rate environment and home loan rates will not stay at these levels forever.
Time to refinance and save money is now, but remember, it is very important that you have a reason to refinance along with a benefit for the new mortgage home loan. Below are some of the benefits to refinancing a mortgage loan.
Reduce Monthly Loan Payment
When considering refinancing your property to lower your monthly payment, you need to take into consideration how much your payment will reduce by. Most believe the payment must reduce by at least 5% in order for the refinance to have a benefit.
Lower Mortgage Rate
Lowering your payment is greatly affected by the interest rate. If you refinance your property and reduce the interest rate by at least 1%, then you will see a reduction in payment as well. Most people do not consider refinancing if the rate does not drop by at least 1%. Keep in mind, that even a slight reduction in rate can have a major impact on the mortgage.
Cash Out Mortgage Option
Many homeowners will pull out cash during a refinance. The cash out home loans allow homeowners to refinance their existing home loan and get extra cash that can go towards debt consolidation, home improvements or anything else the homeowner may want to use the funds for. Keep in mind that cash out mortgages have a slightly higher rate and that a homeowner needs to take into consideration the overall financial picture. There are times that a cash out refinance mortgage could have a higher rate than the current mortgage, but the overall benefit for the mortgage could outweigh the higher rate. For example, if a person has a $200,000 mortgage loan at 5% with a payment at $1400 and has over $10,000 in credit card debt paying $500 per month, by refinancing into a new loan at 5.25% with a payment of $1500 will save this person $400 a month.
Change in Loan Term
Some people refinance their home to change the term of the loan. The most common change is to go from a 30-year loan to a 15-year mortgage. The idea is to pay off the mortgage faster and save more money over the lifetime of the mortgage loan. The payment could increase, but the benefit to this type of refinance is paying the house off sooner.
ARM to Fixed Rate Mortgage
Finally, another reason to consider refinancing is when you are taking an adjustable rate note and refinancing into a fixed rate home loan. ARM mortgages can have a low rate, but the rate is variable and will change throughout the loan. ARM mortgages are designed for homeowners who plan on only staying in the home for a short amount of time, ordinarily 5-7 years. By refinancing into a fixed rate loan, you are locking in the rate for the entire loan term.
There are some reasons to not refinance. If you are planning on selling your home in the next year or so, refinancing might not be the best option. You will have to consider the cost of refinancing and what the overall benefit will be.
With rates at all time lows, it is crucial to talk with a home loan officer and discuss your loan options to see if there is a benefit to a refinance home loan.
