Refinancing your original mortgage is becoming more and more common today. But is this what you need? How do you know if you're getting a good deal or putting yourself in a position to have money problems? Read on for tips that will help you make a good choice.
First, you should know that refinancing your mortgage means you get a new loan for the amount you still owe on your old mortgage, but on new terms, and use the money from the new loan to pay off the old loan.
Depending on the terms of your refinanced mortgage, you may be able to get a lower interest rate than on your original loan. This can be helpful in more than one way. First, it means that you may be able to lower your monthly mortgage payments. This can be helpful if you need to lower your monthly debt payments. If you want to keep making the same amount on your mortgage each month, you could also pay off your home faster with a lower interest rate. This could save you a lot of money over the life of your loan.
You may also be able to get cash back if your interest rate is lower. You can use this money to fix up your house or pay off high-interest credit cards.
Before you try to refinance your mortgage, you should know that closing costs are usually a part of the process. Depending on which lender you choose, you may have to pay the costs up front or add them to your loan and pay them off as part of your new payments. Some of these costs could be an application fee, the cost of a new survey and title search, and inspection and appraisal fees. Also, if your home is worth less than 20% of what you owe on it, you may have to pay private mortgage insurance, just like if this was your first mortgage.
Due to these costs, you may end up paying more for your refinanced loan than you did for your old mortgage, at least at first. This is why it's important to compare the two loans and make sure that re-financing will really help you save money. When you compare, make sure to include how long you think you'll stay in the home. This can have a big effect on how much you save overall. This is important because it will help you figure out where you will break even with your new refinanced mortgage loan and start saving money. If you don't think you'll be in your home for as long as it takes to break even, refinancing your mortgage may not be worth it.
Lastly, don't forget to look over the terms of your first mortgage and make sure that paying it off early won't cost you extra. This can sometimes cost as much as $1,500, which can have a big effect on your break-even point.
