The decision to refinance your home can be a difficult question. Not only the refinancing process seem a lot of work, it is often difficult to know who to trust that tenders announced some lenders seem too good to be true. But when mortgage rates are near historic lows, refinancing your home can be a deal that is too good to pass up.
Here are some things to consider when determining if refinancing is a smart move for you.
Pro # 1 :. You can reduce your current mortgage interest rate
Typically, this is the main motivating factor behind the refinancing. If you originally got your mortgage when interest rates were high, and you have never refinanced, you may be paying more than you need. Taking the time to apply for a new loan at a lower rate could save you hundreds of dollars per month.
For example, if you have a $ 0,000 loan and paying 7 percent interest on a 30 year fixed rate mortgage, your total monthly interest and principal payments are probably about $ 1,331. If you refinanced at 3.8 percent, your monthly payment would be reduced to $ 932. That's a monthly savings of $ 399
Pro # 2: You may be able to pay off other debts or get money
If your home is worth more than the amount you, you. may choose to take a larger mortgage when you refinance. The money you get back may be used to pay off car loans, credit cards or other debt you may have. In some cases this may be a good strategy if the debt you are trying to pay a high interest rate.
However, be careful not to exaggerate or usually refinance your home whenever the credit card balances too high. It is hard to pay off your house if you keep borrowing money from your equity
Pro # 3: .. Refinancing a mortgage variable rate to a fixed rate loan
A variable rate mortgage (ARM) often comes with lower rates and payments in the early years of the loan. But on the loan term, the interest rate - and your mortgage payment - can significantly increase
When interest rates are low, refinancing your ARM to a fixed rate mortgage can make sense -. And that means your interest rates and payments are constant - even if interest rates skyrocket on the road. Know what your mortgage payment will be each month can help with budgeting and money management
Con # 1: .. Refinancing can be costly
Before you start, make you know how much it will cost to refinance. Generally, refinancing costs between 3 and 6 percent of the loan principal. Therefore, it is important not to be tempted to spend too much money refinancing if you know that you will not live in the home long enough to recoup the costs
Ask yourself these questions before 'moving forward. How long do I intend to live in this house? How much money will I save by refinancing? The answers to these questions will help you determine if refinancing is worth
Con # 2: .. Refinancing is not always easy
Many people find much time to refinance. Expect to spend hours or even days, collecting information and documents to your loan application.
Moreover, if something changed in your financial life, as your career or the amount of debt you carry, you may not be able to get a loan at the rate you expected
Con # 3 :. you may not be able to deduct all of your mortgage interest expense after refinancing
If you refinance your home for. same amount that you already have on your mortgage, you can continue taking a mortgage interest deduction as always. This applies even if you take a slightly larger loan to pay off some bills. As long as you itemize deductions on your tax return, you can generally deduct your total interest expense mortgages.
However, your deduction may be limited if you refinance and get a significant amount of cash back. When you refinance, you receive money beyond the amount of your previous mortgage (s) is called equity debt at home. You can not deduct your home equity debt interest on balances up to $ 100,000 ($ 50,000 if married filing separately).
What is the highest interest rate home mortgage you have already paid?
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