In times of financial and job uncertainty, one area in which homeowners can reduce monthly expenses is to take out a refinancing mortgage. Many individuals and families have found it necessary to reduce expenses to accommodate a pay cut or other income reduction.
Most people do this by cutting obvious expenses like restaurant meals and entertainment; however, those who own homes and who are willing to invest a little time can sometimes save much more substantially through the refinancing mortgage process.Whether you should pursue a refinancing mortgage depends on how much it will cost up front, how great the reduction in monthly payments will be, and whether you expect to stay in your present house long enough to gain net benefits.
It is best to start with what is known -the interest rate of the existent mortgage and number of years. The monthly statement contains the base information of what the monthly principle and interest payments are in dollars. If you took out your mortgage some years ago, the rates currently available may well be lower. If advertised rates are lower than your current rate, and substantially so, consider a refinancing mortgage.
The home loan market has the same rates for a new mortgage and for a refinance. A computer-based mortgage calculation program on a website can readily provide the details of a payment stream on a given amount for a given number of years. A longer-term mortgage loan has lower monthly payments, but the interest component is higher, which in turn makes the repayment total higher over the length of the loan. A direct comparison is easiest if you look at a refinancing mortgage term at the same length as your current mortgage, whether it is 30 years or something less.
The costs of obtaining the refinancing mortgage are generally similar to obtaining a loan on a newly purchased home. A refinancing mortgage may somewhat less costly, in cases where the lender will accept a previously obtained title search. In any case, potential lenders are required to disclose all costs associated with closing a loan.
The decision to refinance is based on a comparison of the one-time cost of getting a new loan, balanced against the monthly savings at the lower rate. Ultimately, a plan to continue living in your current residence for a long time will tilt the decision towards refinancing. If you are uncertain about long term residency, it might be best not to refinance.
By Robert Charlson