Skip to main content

Reasons that Justify Your Decision of Refinancing Your Mortgage Efficiently

Refinancing a mortgage involves disbursing off the current loan and replacing the same by taking another one. This new loan can be brought through different means such as from bank or authorized institutions such as Network Capital Funding Corp. However, the cost of refinancing can range from 3% to 6% of the principal amount, and that it calls for appraisal, application fees, and other formalities demanded by the original mortgage. Therefore, it becomes vital for a homeowner to justify her or his decision of refinancing for reaping its benefits. There are several reasons why refinancing is found to be useful, and that each of them has a unique set of pros and cons. So, let’s check them out now!

For Reducing the Term of the Loan
The homeowners often find it useful to refinance an existing loan when there is a chance of getting a shorter loan term. For example, refinancing 25-year mortgage on a $200,000 property at a fixed rate from 8% to 5% can bring down the term to 12 years. Herein, the monthly payment may or may not change.

For Obtaining a Lower Interest Rate
One of the ideal justifications for refinancing mortgage is to enjoy a lower interest rate on the current loan. Reduced interest rate is certainly the most desired benefit because it not only aids in saving money but also helps in boosting the rate at which one can create equity in home as well as reducing the pay that is given on a monthly basis. In the past, the common rule was that it was beneficial to refinance if one would obtain a lower interest rate by a minimum of 2%. However, the current experts are of the opinion that 1% savings is a good motivator to opt for refinancing. For instance, a 25-year mortgage with an interest rate of 8% on a $200,000 property can be refinanced at 5% interest rate, which also reduces your monthly payment.

For Shifting between Fixed-Rate and Adjustable-Rate Mortgages

It is true that adjustable rate mortgages begin by providing you lower rates than the fixed-rate ones. However, intervallic adjustments typically lead to an increase in rate that is higher than the fixed-rate mortgage’s rate. In this case, it is better to convert the adjustable rate mortgage into to a fixed-rate one for reaping the benefits of lower interest rate and prevention of interest rate hike in future. However, even the converse can be a beneficial decision, especially when the interest rate is falling. When the interest rates tend to fall, the intervallic rate adjustments on an adjustable rate mortgage lead to reducing rates as well as smaller payments per month. As a result, the need to refinance consistently is eliminated gradually.

Moving to an adjustable rate mortgage is a sound decision particularly for those who do not wish to stay in their house for more than some years. When the interest rates fall, these people can bring down the rate as well as monthly payment without worrying about the interest rate hikes in the future.

For Dealing with Debts

There are several homeowners who refinance for consolidating debts. It is ideal to change high-interest debt with a low-interest mortgage at face value. Sadly, refinancing does not come with an automatic spell of financial cautiousness. As a fact, a considerable number of people who have high-interest debt simply end up raising the debt after mortgage refinancing liberates them to do so. As a result, an immediate loss is experienced in terms of wasted refinancing fees, equity in the house, and extra interest payments on the new loan. So, one should not take this undue advantage of mortgage refinancing for it to be successful.

About the Author: Mary Carnegie is a senior broker who is working at a famous American mortgage company. Currently, she is working hard to be a part of a recognized finance company such as Network Capital Funding Corp. She is available on twitter @maryjcarnegieor or https://twitter.com/maryjcarnegie.

Comments

Popular posts from this blog

Low interest credit cards - how to make them work for you

Credit cards are borrowing instruments, unlike debit cards where you already have the money. Banks are there to make money too. Just like high street stores, they hope to maximise their profits within the rules. So it’s important to understand the basics and find a credit card that’s right for you – you can compare low APR credit cards here . Now you know the rules, let’s find out how to play the game. The financial services industry charges interest on the money that it lends out. Let us assume you borrow £100 on your credit card and keep it for exactly one year before you pay it back. For the purposes of this article, we will assume your loan attracts 8% interest per year, which is the Annual Percentage Rate, or APR for that particular transaction. Practical example

Why it’s important to save for retirement

While retirement may seem far off in the distance for some, financial experts say you’re never too young to begin saving.  In fact, the earlier you calculate your retirement needs and start building your nest egg, the easier it will be to create a viable plan for the future. Many experts advise you begin saving a percentage of your income for retirement as soon as possible, no matter how little the contribution may be, as it’s possible the Social Security benefits millions of people currently depend on may be in jeopardy.

What are the Consequences of Overspending in Life?

How overspending can ruin your financial life? With today’s expenses and their prices, it can be very hard not to overspend. Still, that isn’t an excuse to stray out of your budget. You know why? It is because overspending can only lead to more problems than you think. Overspending can affect your whole life. With all the possible consequences, it may jump from one problem to another. Unpaid bills All the excessive shopping with your credit card can cause steep bills at the end of the month. If you keep on using your credit but don’t have enough money to pay for it in the end, then you’re surely in for a huge financial disaster. This will turn out to be missed payments, and missed payments will ruin your credit report. Missing out on payments will get your credit report marked for 7 years or more. And you can’t get rid of them by finishing them off. Credit report Overspending can cause a chain reaction of events. Once you get your bills due to overspending, it’s possible for you to mi

The Top 4 Reasons People Fail at Budgeting

Budgeting isn’t easy, and many people experience difficulty trying to get the most out of this essential financial tool.  While the concept may sound simple, adhering to your budget could be a lot harder than you might think.  To help you experience success, here are the top 4 reasons why people fail at budgeting .

How does a Prepaid Credit Card work?

Can They Really Be a Solution to Avoiding Credit Card Debt? When it comes to plastic, there are a lot of choices out there. Not only do you have the choice of credit card , debit card, or prepaid credit card, but you also get to decide which financial company you want to use as your card provider. Credit cards and debit cards are both risky. Credit cards can help put you deeper into debt, while debit cards give thieves and collectors access to your entire bank account. A growing number of people are finding that prepaid credit cards are becoming the best option. What Are Prepaid Credit Cards? Prepaid credit cards look and act just like a credit or debit card, except you put the money on the card before you make any purchases. You are only allowed to spend as much money as you have pre-loaded on the card, which means that you are not at risk of going into credit card debt from overspending. These cards also keep your money safe, because thieves will be limited to the amount that is on t

How to Make Your Title Loans Safe and Sound

Although title loans are tagged as risky, innumerable folks still use them for fulfilling their different financial obligations. Therefore, such loans are not completely bad because their significant use despite the risk factor says a lot of their pros. This makes it vital to discuss how these loans should be used so that the risk factor can be minimized up to a great extent. For those who are not aware of, the risk of title loans crop up in the form of consequences when you fail to pay back the loan. With such a failure, you are surely going to lose your car as well as decrease your credit score further.

How Equipment Loans can help your Business Thrive

Image via gettyimages Different companies enjoy common benefits from capital equipment. Machinery has direct and indirect effects on your bottom line. A new oven and forklift each make your business more productive. Meanwhile, interest and depreciation expense are tax write offs that indirectly improve business profits. However, your business may not qualify for a general purpose loan to buy much needed equipment. Some obstacles include: