You need to analyze before borrowing money from your property.
A home loan refinance could be a great way to lower your monthly mortgage payment, get money for another big purchase, or consolidate debts with high interest rates. But you need to investigate before taking this step. An important factor is the difference between the interest rate you pay now and the interest rate after refinancing. Also you need to calculate the period to recover the cost of the home loan refinance.
Dropped interest rates? Or you expected them to rise? Does your credit rating has improved so much that could be eligible for a mortgage with a lower interest rate? You want to change to a different type of mortgage?
Your answers to these questions will influence your decision to look for a home loan refinance. But before you decide, you need to know what it means to refinance. It is possible that your home is your most valuable financial asset, so you want to be cautious when choosing a lender, broker or Mortgage Company and the specific terms of the mortgage. Remember that, along with the potential benefits of the home loan refinance, there are also costs.
When you choose to refinance, you pay off your existing mortgage and create a new one.
Perhaps even choose to combine the first and second mortgage into a new loan. Refinancing may remind all you had to do to get your original mortgage, since you may need to perform many of the same procedures -and the same types of costs- the second time.
Change the length of your mortgage.
Increase the term of your mortgage: you could accept a mortgage with a longer term to reduce the amount you pay each month. However, this will also increase the period during which he made mortgage payments and the total amount you end up paying in interest.
Reduce the term of your mortgage: short-term mortgages for example, a 15-year mortgage instead of a mortgage to 30 years usually they have interest rates lower. In addition, pay off your loan in less time, so in turn reduces the total cost of the interest. The downside is that your monthly payments are usually higher because you are paying a higher proportion of capital each month.
Get cash from capital accumulated at home
The home equity is the difference in dollar value between the balance you have in debt on your mortgage and the value of your property. When you refinance for an amount greater than you owe on your house, you may receive the difference in cash settlement (known as refinancing cash). You might choose this option, for example, in case you need some money to make home improvements or pay for your child’s education.
However, you remember that when you remove part of the capital, owe more on your house. It will take time to rebuild equity in your home. This means that if you need to sell your home, will not get much money from the sale.
When refinancing is not a good idea?
You have maintained a mortgage for a long time.
The amortization table shows that the proportion of your payment credited as part of your loan increases every year, while the proportion credited to the interest decreases each year.
In the last years of your mortgage, a larger portion of your payment is applied to capital and contributing to building up equity in the property. By refinancing in the last part of your mortgage, you will restart the amortization course, and most of your monthly payment will be credited to paying interest again and not for the accumulation of capital in the property.