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Written by Frank Bossel
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A Lower Interest Rate If the refinance mortgage interest rate offered to you is lower than the interest rate you are currently paying, then it makes sense to refinance your home, in some situations. Remember that when you secure a new home loan, even as a refinance, you will need to pay closing costs again, which may negate any small savings you will have in interest rates. To know what the difference would be with a simple refinance, get quotes from several mortgage companies and find out what the closing costs would be and what the new loan will do for you.
A Better Term The term of your loan is the amount of time you will pay off the loan. A longer term will provide you with a lower monthly payment. A longer term will also cost you more because there is a longer period of time where interest will accumulate. A shorter term will save you money in the long term but has a higher monthly payment. Finding the right term means finding the balance between what you can afford to pay each month and what the total cost of buying the home will be. A lower interest rate does help, but often refinancing your home to get a better term is an option too. For example, if you have been paying on your 30 year loan for 10 years, you could refinance your loan into a new 30 year loan to get a lower payment. On the other hand, you may want to pay more per month and cut that loan term down to 15 years. Both of these are reasons for refinancing.
Pull Money Out Perhaps one of the most common reasons to refinance is to pull equity out of your home's value. Equity is the amount of value your home has that is not under a mortgage. It is the amount you have paid down over the loan's term and the amount of value increase the home has seen. With new loan through refinancing, you will be able to pull out this equity and use the funds as you need to. Many people use equity in their homes to help them pay down debts, to make substantial improvements to their homes or to help them take a dream vacation. The options are yours.
Finding The Right Loan In order to know which mortgage loan company is the best one for you, shop around. Most companies offer a mortgage calculator on their website. These calculators are one of the best tools you can have because they will help you see exactly what the new loan scenario would be. For example, if you refinance, you can use these calculators to give you an estimate of what your monthly payment would be or how much interest you will pay on the home in the long term.
Shopping around is important, but do so cautiously. Since the interest rate you will pay on your home loan is based, in part, on your credit score, getting personal quotes from several lenders will require them to pull a credit report on you. These additional credit reports could be a red flag and therefore drop your credit score. Instead, talk to the mortgage loan company about the rates they would likely offer to you, based on your situation, on your approximate credit score and in the terms you are looking for.
Mortgage refinance rates are the same as those rates offered to home buyers, in most cases. This does not mean that the interest rate that is advertised by the company is the one they will charge you. Rather, it means that this interest rate is the base where they start. Your credit score, your credit history, and other factors determine what amount of interest the company will charge you. Shopping around will help you find the lowest mortgage interest rate for your refinance. |
