So many people are in the dilemma of should I refinance their mortgage? I think people are right to be cautious about refinancing their mortgages. The decision to refinance your home should not be taken lightly; you need to carefully weigh up the cost involved, for instance, the closing cost and as well if it is worth it to refinance at this time
Mortgage refinance will lower your monthly repayments, save you money and also free up some money in your budget.
Watch Your Interest Rate and Your Terms:
Before you attempt to refinance your mortgage, you should make sure that you are getting the best interest rate. Like in any mortgage loans, ensure that the interest rate and terms of the loan you are been giving are the same as it has been originally quoted. If in any circumstances the rate changes, make sure the current rates are favorable to you or look for other banks that offer better mortgage terms. Also, try to explore the option of getting a lower rate for automatic payments.
Consider the Length of the Refinance Loan:
You should take into account the length of the loan when seeking to refinance your mortgage. Simply because it is more beneficial to you, in the long run, to shorten the length of the mortgage loan and increase your repayment in comparison to paying the thirty-year loan. The lenders generate most of their profit from interest payment on the loan, hence it is in their interest to give you a longer loan repayment period. If you can, try to get a ten or fifteen-year mortgage refinance loan which in the short-term, your monthly repayment will be high but overall you will be better for it.
Don’t Draw Equity Out of Your Home:
I have fallen into this trap in the past and you shouldn’t. Time and again folks get equity of their home for various reasons. The reasons ranging from using it to pay credit card debt, wedding, college education, or home improvements. What you should realize is, as you draw out equity in your home, by extension prolonging the repayment period of the loan and consequently pay more interest on the mortgage.
So you need to know that you are putting your house and your investment in danger the moment draw out equity in your home to pay off your credit card loan.
Don’t Refinance to an Adjustable-rate Mortgage (ARM):
If your aim of refinancing your home is for lower mortgage repayments, don’t be tempted with an adjustable-rate mortgage instead go for a lower interest rate fixed mortgage. While the adjustable rates might be tempting but overall, you will pay higher interest rates and monthly repayment because the rates fluctuate over time.
In other words, the rates do go up and down according to the inflation indicator in the country and if the reserve bank decides for any reason to increase the base interest rate, your mortgage company will pass the cost to you hence your monthly payment will go up; while in the case of a fixed-rate mortgage, the rate will remain the same. Therefore, in the long run, locking in the lower fixed rate will save you more money.