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Is Now the Time to Refinance?

I’ll admit, I got pretty excited to see the interest rates drop so low. Immediately, I started thinking about refinancing my home. It was fun to think of the money I could save each month, and overall.

I spoke to a few brokers, and found lots of them eager to help me out. The radio is full of commercials offering 4% interest rates, no closing costs, and many other dream offers.So for myself (and you!), I decided to check it out. First of all, I learned that 90% of the advertised offers were only for those with PERFECT credit, PERFECT home values, etc. The reality is that we all know if it sounds too good to be true, it is.

So, where do we start?

Do the Math. Figure closing costs and overall savings.
There are always closing costs and someone has to pay for them, most likely you. This will be several thousand dollars. If a new loan is going to make sense, then you need to be in the house longer than it takes to break even on those costs. For example, you are initiating a new loan, which will save you $200 a month, and your closing costs are $3000. It will take you 15 months to break even on those costs. Does that make sense? If you finance those costs into the loan, it will take even longer due to the interest you will pay. Click here for a refinance breakeven calculator.

What is your real savings? Your lender should be able show you what your real interest totals. Compare this to what you have left on your current loan.

Are you extending the term of your loan? If you only have ten years left on your mortgage, and you are refinancing for another thirty years, is this your best option? If you are close to retirement age, then extending the loan may not make sense. Take a look at your overall financial goals.

Are you financing old debt into the new loan? While rolling credit card debt into your mortgage can help with short term cash flow, are you committed to making the changes in your life to make sure that the credit card debt doesn’t accumulate again? Over 70% of the people who consolidate their debt end up replacing that with new debt.

Do you trust your lender? There is a huge increase in refinance and loan modification scams. In fact, the FDIC has new literature out just to address this issue. You can find out about the common scams here. At the end of the day, you should understand your new loan so well that you could explain it to someone else. When you do, you may realize (like I did) that a refinance just doesn’t make sense right now.

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Why Me?

credit card debt

ADVANTAGES IN TAKING A HOME EQUITY LOAN

When the overall real estate market does well, it is for certain that your house must have appreciated over time. If you have been repaying your original mortgage on time, a lot of equity must have built up by now. With lower interest rates and good equity built up on the house, it’s the best time to take a home equity refinance.

Generally, along with a home loan, people tend to have other high interest loans like credit card debts, personal loans etc. So taking a refinance helps you reduce your monthly expenditure with consolidation of all debts into one bill. It becomes easier to keep a track of the payments also due to one bill.

When you take cash out refinance you can get some equity to invest elsewhere, that either helps to remodel the house and thus, value of the house goes up. But keep in mind that there are fees if you plan to withdrawal from the refinance. Information on different loans are available online with rate calculators to help you budget your expenses. You can also check with other dealers and lenders in your area.

Doing a home equity refinance turns to be good for your budget.

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