Saturday, 14 November 2015

Things to Consider With Refinance Mortgage

You should know the times when it makes sense to refinance mortgage. Is refinancing right for you? You have to consider several things to find answer of this question.

When Should You Refinance?
You can apply for refinancing if you have a minimum of 5-10 percent equity in your home. Under certain conditions, refinancing is possible for owners having less than five percent equity in home. The rate of refinancing should be at least two percent lower than the original mortgage rate. In such a case, the benefits of refinancing outweigh the new loan costs after crossing the break even period. Only owners who are staying in their house until break even point can see the benefits of refinance. Always check your credit report before considering refinancing option. You should also not have any late payment record in the last one year.

When Should You Not Apply for Refinance Mortgage?
There are cases where mortgage refinance is not such a good idea. If you have taken a home equity loan where your equity is used as collateral, then applying for refinancing is not recommended. Do not apply if the market value of your property has declined significantly. In such a case, the refinance loan amount will be lower than the remaining balance on the original loan. It means you will not be able to pay off the original loan with the proceeds of new loan. It is not advisable to refinance your existing loan if you have already paid back a significant part of it. Some lenders levy a prepayment penalty. If you cannot successfully negotiate waiver of this penalty, you have to consider penalty costs before applying for any mortgage refinance.

Time Length of Your Mortgage
You may be paying a large amount per month to clear your short-term mortgage. You can reduce this amount by taking advantage of a long term refinance mortgage. At the same time, you must remember that there will be an increase in the time period you have to keep paying mortgage payments. The total amount you ultimately pay may also be higher. There is an opposite side of it. You may want to decrease your mortgage term. The advantage of this option is that there is lower interest rate on a short-term mortgage. Additionally, you will be able to pay your loan in a shorter length of time. Consider the option that is best suitable for you. If you want any help, feel free to contact us. Find a location near you and get in touch.

Change from ARM to FRM
Both ARM (adjustable rate mortgage) and FRM (fixed rate mortgage) have their advantages and disadvantages. In case of ARM, your monthly loan repayments can increase or decrease depending on the prevailing interest rate. If you expect the interest rate to increase in future, you may want to change your ARM into FRM. Another option is to apply for an ARM that comes with better terms.

Determine the purpose of home refinancing. There are many refinancing options so look for the one that matches your refinancing needs. Look for competitive rates and compare various options. Use the option of refinance mortgage to lower your monthly payment, get cash out of your property, switch to FRM from ARM, and shorten the mortgage term. You may be eligible for lower rates and faster loan approval. Take help of a mortgage consultant to find if you should refinance mortgage.