Things to consider when Refinancing

Lowering your interest rate

The interest rate on your mortgage is tied directly to how much you pay on your mortgage each month--lower rates usually mean lower payments. You may be able to get a lower rate because of changes in the market conditions or because your credit score has improved. A lower interest rate also may allow you to build equity in your home more quickly. As a general rule of thumb is if you can reduce your rate by 1% then you may want to consider Refinancing. Keep in mind the cost of refinancing. Another general rule of thumb is that you should be able to recoup the cost of the Refinance with in the 1st 3 years of the new loan through what you save in monthly payments. This is only on a rate and term Refinance.

Adjusting the length of your mortgage

Increase the term of your mortgage: You may want a mortgage with a longer term to reduce the amount that you pay each month. However, this will also increase the length of time you will make mortgage payments and the total amount that you end up paying toward interest. This is a good option if you are needing to reallocate money for other expenses such as college or a business that you may own.

Decrease the term of your mortgage: Shorter-term mortgages--for example, a 15-year mortgage instead of a 30-year mortgage--generally have lower interest rates. Plus, you pay off your loan sooner, further reducing your total interest costs. The trade-off is that your monthly payments usually are higher because you are paying more of the principal each month. This is a good option if you want to retire by a certain age and will be on a fixed income. Remember that once the mortgage is paid off you will loose that tax write off. Investors like the shorter term especially if the rent is enough to cover the payment on the mortgage. You can also reduce the term by paying extra on your mortgage each month. this would save the cost of the Refinance but yo have to stick with it and it takes self discipline. Not always an easy thing to do on your own.

Changing from an adjustable-rate mortgage to a fixed-rate mortgage
If you have an adjustable-rate mortgage, or ARM, your monthly payments will change as the interest rate changes. With this kind of mortgage, your payments could increase or decrease.

You may find yourself uncomfortable with the prospect that your mortgage payments could go up. In this case, you may want to consider switching to a fixed-rate mortgage to give yourself some peace of mind by having a steady interest rate and monthly payment. You also might prefer a fixed-rate mortgage if you think interest rates will be increasing in the future. In today's market with rates as low as they are if you are on an ARM it would be a great time to refinance to a fixed rate.

Getting cash out from the equity built up in your home

Home equity is the dollar-value difference between the balance you owe on your mortgage and the value of your property. When you refinance for an amount greater than what you owe on your home, you can receive the difference in a cash payment (this is called a cash-out refinancing). You might choose to do this, for example, if you need cash to make home improvements or pay for a child's education.

Remember, though, that when you take out equity, you own less of your home. It will take time to build your equity back up. This means that if you need to sell your home, you will not put as much money in your pocket after the sale.

If you are considering a cash-out refinancing please get in touch with me and I will go over all the benefits and also tell you some of the possible negatives associated with your refinance. I will walk you through the entire process.

When is refinancing not a good idea?

You've had your mortgage for a long time.

The longer you have had your current mortgage the more your payments are going towards the principal. If you refinance during this time you will loose this because your loan will re amortize once the refinance is done.

Are you eligible to refinance?

Determining your eligibility for refinancing is similar to the approval process that you went through with your first mortgage. I will consider your income and assets, credit score, other debts, the current value of the property, and the amount you want to borrow. If your credit score has improved, you may be able to get a loan at a lower rate. On the other hand, if your credit score is lower now than when you got your current mortgage, you may have to pay a higher interest rate on a new loan.

I will look at the amount of the loan you request and the value of your home, determined from an appraisal. If the loan-to-value (LTV) ratio does not fall within my lending guidelines, we may not be able to refinance your loan, or I may offer you a loan with less-favorable terms than you already have.

If housing prices fall, your home may not be worth as much as you owe on the mortgage. Even if home prices stay the same, if you have a loan that includes negative amortization (when your monthly payment is less than the interest you owe, the unpaid interest is added to the amount you owe), you may owe more on your mortgage than you originally borrowed. If this is the case, it could be difficult for you to refinance.
I would be more than happy to go over all the options that are available to you. Just get in touch with me and we can go over the options together.