Refinancing Details
Right now is a good time to refinance your home loan if you have not considered that option yet. Interest rates are still low and terms are competitive. Getting out of your old mortgage rate and into a brand new lower fixed rate loan could mean saving thousands over the life of the mortgage loan. If refinance is the right choice for you then you should look into a new loan, but consider some important points before refinancing.
Once you have decided on going with a refinance, consider the cost. Refinancing a home will have cost such as: appraisal fees, application fees, any early repayment penalties, closing cost, paying off liens on the property, just to name the main expenses. If you are going to do a refinance, you should be planning on being in the property close to another 5yrs with at least a 1% point mortgage interest rate lower than the mortgage rate you are currently in. If not, it may not make a lot of sense to refinance. You can see what kind of savings you will save on your payments with a mortgage calculator, and use the saving you are getting to offset the amount that you will pay to get your new loan to see how many years it will take for your to break even, then everything after that is your actual savings for the rest of the loan. That is why you want to look at a refinance savings a few years out after you have paid off the expense of getting the new mortgage loan. Banks nowadays are looking for you to have some equity in your property before refinancing; and right now, that is not common with the falling house values as of late.
When refinancing it is always a good idea to set up your mortgage on a 30 yr loan, as opposed to a 15 yr loan, unless you can easily afford a 15 yr mortgage. But the goal in refinancing to get a lower payment and save money over the life of the loan. Doing a longer mortgage definitely lower your monthly payments. If later on you feel like paying off the mortgage earlier, you can always check to see if you have a early repayment penalty in your contracts, which is usually around the 5th page of your mortgage contract; and if there is no early repayment penalty, you can pay it off early.
The best and most effective way to pay off a mortgage early is to send in your regular payment, then send in a separate check for payment on the principal amount of the next payment in your amortization schedule. You will get this schedule at closing. Lets say your mortgage payment is $1500/mth, and this is your 6th payment to date, just check the amortization schedule for payment #7, or payment #7, #8, #9 and add those principal amounts together and send it in as a separate check to be applied to your principal payments for those payments. You can do this whenever you can afford to do so. What this will do is, it will allow you to eliminate your interest payment for payment #7, #8, and #9, so that you advance with your mortgage payments and end up paying it off up to 15 yrs earlier if you maximized your early payments fully. Remember, the earlier you start to pay it off, the more money you save, and the earlier you will pay off your mortgage.
Make sure you look into any mortgage refinance in depth, and compare lenders to see which one has the best rates and terms that fit your needs best. Do not just jump into a mortgage loan because it looks good. Be aware of all the charges you will get for refinancing and find out what the penalties are in general. See if you have early repayment fees for anything under about 3 yrs, which is standard. Meaning if you pay of the loan before 3 yrs you are then entitled to more fees; sit down with the figures and see if makes sense before signing up for a new loan. A bank loan officer can answer the questions that you may have with the loan, and they will meet with you before closing. See if you qualify for any assistance under the new stimulus program recently passed, there are some benefits for homeowners who are refinancing because they can not afford their payment; Ask questions when you do not know the answers.
