Now that you have bought your dream home, you have a lot of debt and are under a lot of financial stress. Many smart real estate investors use a useful solution that gives them more cash flow, a lower interest rate, and a lower monthly payment. This financial tool, called a "mortgage refinance," is not hard at all. All you have to do is do some math and use your money wisely.
This could be why refinancing a mortgage is so popular and profitable. When you refinance your mortgage, a good rule of thumb is that the interest rate on your new loan should be at least 2 percentage points lower than the rate on your old loan. In the current economy, there are a lot of credit institutions and loan products on the market. As a result, you get a lot of different offers, such as free mortgage refinance and low-cost mortgage refinance packages. So, after you refinance your mortgage, your new monthly payment will be much lower than the old one.
But if you live in your current home for a certain amount of time, refinancing your mortgage makes even more sense and saves you money. If you plan to move out or sell the house soon, you may not be able to refinance your home mortgage. The longer you stay, the more you save each month because your rent will go down. If you plan to own and live in your home for at least three to five years, you should think about refinancing your mortgage.
If you think that refinancing your mortgage is a good idea, think about the following:
Mortgage refinancing companies are eager to waive the application, appraisal, and other legal fees that have to be paid up front. But you may have to accept a slightly higher interest rate in exchange for this very low or almost free cost up front. But it's clear that this new mortgage rate is still a lot lower than the rate on your old loan.
Take into account the points factor. Most of the time, 1 percent of the total loan amount is equal to 1 point. Also think about the closing costs or the total amount you will have to pay at the end of the set number of years. Now, it doesn't make sense to pay for those points and closing costs if you don't plan to live in the house for at least three to five years.
You can make more money if you add the points and closing costs to your new mortgage. This might look like having to take on more debt, but it's not. If you keep your current mortgage for at least three years, you can cut your balance by a lot. Even though the closing costs of the new loan will be added to your new loan, you will still have less debt than you did with the old loan. When you add in the advantages of a lower interest rate and a lower monthly payment, it's easy to see why mortgage refinancing has become so popular in recent years.