Should I Refinance My Mortgage?

If you are in a situation where your mortgage has been eating a large sum of your monthly income, then refinancing your home mortgage can be a way out. You possibly were in dire need when you opted for a mortgage irrespective of higher interest rates. However, if you find interest rates plummeting in the next few years, you should seriously consider refinancing your mortgage. However, mortgage refinance comes with its own share of cons, hence, if you are not vigilant you may not derive a great deal out of refinancing or worse, you may find yourself in a financially critical situation.

Why to Consider Mortgage Refinancing
As mentioned above mortgage payments eat up a large chunk from your monthly expenses. As a result you are left with little or no money to take care of your other needs. Hence, if you qualify for a lower interest refinance you should indeed go for it. Lower interest means you will have to pay less towards your monthly pay offs. As a result, you can pay the saved money towards credit card payments or other bills. Some people consider refinancing to pull out the equity. However, this is not always a wise option. Though, you can get some fast cash, you risk losing your house in case you fail to repay in future.

When to Consider Refinancing Your Mortgage
'Should I refinance my mortgage now?' is a frequently asked question from people who wish to refinance their mortgage when the interest rates fall. Remember, do not rush for refinancing as soon as you see plummeting interest rates. Refinancing comes with closing fees and additional expenses. Even the no closing cost refinance includes some sort of fees (known by a different name). Hence, you may not truly benefit if you refinance your mortgage at a fraction of the mortgage rate of original loan. It is recommended that you wait until you get at least 2% decrease in interest rates upon refinancing. Take into account all the closing fees and other expenses of refinancing. Check these expenses against the monetary benefits you will receive from refinancing. If you are certain that you will get a great deal, only then go for it.

Is It a Good Idea to Refinance to a 15 Year Plan
Refinancing your mortgage to a 15 year or better 10 year payoff plan is indeed a very good idea. If your original pay off plan is for 30 years, you would probably be paying it for the rest of your life. Although, longer time span means you have to pay less every month, you end up paying a lot more in the long run. The interest incurred on your mortgage loan increases with every passing year. By opting for a shorter duration payment plan, you cut your interest amount to a great deal. Hence, even though you might have to shell a few extra dollars every month, you will become debt free in less time than you actually estimated. In short, refinancing your mortgage for less number of years is always a good idea. However, make sure you have means to cover the additional expenses.

Refinancing Adjustable Rate Mortgage
Adjustable Rate Mortgage (ARM) essentially means you will end up paying higher interest rate at some point of time. Hence, make it a point to lock in the lower interest rates. Never refinance for an ARM, even if your current rate is less than perfect.

While signing a contract, check if the interest rate in the quote and on contract is same. If possible get the refinancing done from the previous lender, as it helps to reduce the tedious paperwork.