Refinance With More Confidence
(Taking out a mortgage can be a very complicating, stressful process.)
What rate should you get? How much should you put down? How long should the loan be?
But you have to admit, it feels good when you finally sign the final documents, ensuring that you will pay hundreds of thousands of dollars for a new home.
After a few years, many mortgage borrowers realize that they want to refinance their loan either for a lower rate or to free up some extra cash. Since the borrower has previously gone through the mortgage process, he or she often tends to think that the refinancing process will be as easy as finding a low interest rate and signing a few initials. You are still dealing with hundreds of thousands of dollars, so you need to be careful just like when you initially applied for a loan.
The informative article, “Three Rules of Thumb for Mortgage Refinancing,” written by Stephen L. Nelson and posted on mortgage.araund.ru, provides crucial reminders and other tips about how to successfully refinance the mortgage on your home.
The first thing you should prepare yourself for is total interest cost; do not ignore them.
You really want to use refinancing as a way to reduce the total interest cost you pay. While that sounds simple in principle, it is sometimes difficult to do. The interest costs you pay are a function of the interest rate, the loan balance, and the loan term period.”
Therefore, do not just focus on the interest rate. The loan term and balance carries just as much importance.
The second rule is to “trade expensive money for cheap money.” You want to swap higher interest rate debt for lower interest rate debt. But this takes a little more understanding.
“To make an apples-to-apples comparison, you must look at the annual percentage rate that will be charged on your new loan—this is the best measure of the new loan’s interest rate cost—and then compare this to the loan interest rate on your old loan.”
Do not simply compare interest rates on the two loans or the annual percentage rates on the two loans. You best benefit by comparing the loan interest rate on the old loan to the annual percentage rate on the new loan.
The third rule that a surprising high number of people do when refinancing, is that they extend the repayment period.
“Be careful that you don’t extend the length of time you borrow by continually refinancing. For example, one common rule of thumb states that every time interest rates drop by two percentage points, you should refinance your mortgage. However, there have been times in recent history when following this rule would have had you refinancing your mortgage every few years.”
But this could result in still having a loan with 30 years left of payments, after refinancing several times. Be careful of what you want when refinancing. Do not fall victim to low interest rate advertisements and “easy refinancing” gimmicks. Take your refinancing as seriously as you did with your first mortgage.
