A Beginners Guide to Home Refinance
Published on September 24th, 2014 | by Joan Makai
With today’s unstable economy, paying for a mortgage may not always be easy especially when problems like recession and unemployment hit the country. When that happens, interest and other fees will pile up making it even harder to fulfil our obligation. It’s when during the time like this that many homeowners think of refinancing their mortgage. In a layman’s term, refinancing a home is as simple as acquiring a new loan to pay off existing obligation. It allows homeowners to get off from a bad situation and manage their finances in a better way without having to sacrifice their hard-earned abode.
Deciding to refinance your mortgage is not an easy feat. With so many things to consider you may find yourself wondering whether or not refinancing is beneficial for you in the long run. Although there are many advantages to home refinancing, it may not be for everyone, so if you find yourself torn between deciding to refinance your loan or stick to your old mortgage check this few simple benefits of a home refinance.
- Shorter Loan Term
There are many reasons why people choose to refinance their homes but one of the main goals is to shorten the loan term. As more banks offer different payment schemes for home loan, you can easily cut your mortgage term without having to change much on your monthly payments, as a result you can be able to finish the loan earlier.
- Lower Interest Rate
When you refinance an existing mortgage, you have the opportunity to get lower interest rate and save more on your monthly payment. It may not look that much but in our current economy, a rebate as little as 2% on your home loan do wonders on the savings department.
- Convert Adjustable Rate Mortgage into Fixed Rate and vice versa
If the ever increasing interest rate is a bother to you, converting your mortgage into fixed rate could be beneficial. It will help you save more on monthly payment if your mortgage has a fixed interest rate. On the other hand, converting fixed rate into adjustable rate mortgage can result to lower monthly payment when the interest rate drops.
Refinancing your home is a good option to get lower monthly amortization but like many other things, this process also has few disadvantages. Aside from the additional bank fees that will be incurred when refinancing a home, you also need to consult with and pay for a lawyer in order to get the best deals possible. Also, one of the major dilemmas that borrowers face during refinancing is the penalty that they need to pay with their existing mortgage before they were allowed to refinance. The penalty for refinancing could amount to few hundreds or thousands of dollars and in some cases, borrowers end up spending more than they can save when deciding to refinance. In order to get the most out of your mortgage you should take time to compare interest rates and shop for the best offer before jumping into the refinancing wagon.