Refinancing can save you money, but the downside is that you have to restart amortization. Once again you are paying mostly interest at the beginning of your loan. But there are ways you can get around this, keeping your original pay off period and saving on interest charges.
Short-Term Refinance Loans
Lenders offer a variety of terms – 30, 25, 20, or 15 years. By refinancing for a shorter term you can closely match your original pay off date. Unfortunately, lenders don’t fraction year terms – such as 22 years and 4 months.
However, by choosing a shorter term, you may qualify for even lower rates. You can also pay off your loan sooner, further increasing your interest savings.
Self Increasing Your Payment On Refinance Loans
Another option is to refinance your mortgage for 30 years. Then make an additional principal payment each month to pay off your loan at the original date. You can use a mortgage calculator to determine this amount. You can also make one extra payment a year to reach the same results.
With this approach, you have control over your payments. For some this can be seen as a negative, since there isn’t the required payment. You can also pay off your loan earlier by increasing your principal payment even more.
Pre-pay “Cash Out” Refinance
The third option is to take out the original loan amount. Then prepay the principal amount to what you currently were at with your original loan. That way you will pay off your loan on your original terms.
This option gives you more control over the pay off date. But, you may be charged a higher rate for cashing out part of your equity.
Selecting the Right Refinance Option
Each approach has its own advantages and disadvantages. Mostly it comes down to a matter of preference and what works for your budget. However, do ask for rate quotes to see the difference in interest costs. Not only will you have a better understanding of the numbers involved, but you will also find the best APR.
By: Carrie Reeder
Posts Tagged ‘Amortization’
Different Types of Mortgage Refinancing Loans
December 29th, 2009
There are several types of mortgage refinancing loans available in the market today. With these different types of getting your mortgage refinanced, you can make the choices based on your circumstances and your needs. These are mostly taken out to make some renovations, pay off debts or use the proceeds for your child’s college education. Regardless of where you will use the proceeds of the refinancing loan, it would be smart to know the different types in order to make an informed decision.
The different types are; fixed rate, variable rate, interest only, balloon type, home equity, and fully amortizing mortgage refinance loan.
Fixed rate type is one where the interest rate is locked to a fix amount and will stay for the duration of the loan. In other words, it would simply mean that you are going pay at a constant rate of interest for the whole life of whatever balance you have.
Variable rates are where the interest rates fluctuate or changes with certain predetermine index. This is not for the faintest of heart as this can change anytime as the market changes its directions. This type of refinancing normally gives the borrower and introductory low rate which is usually between 3 to 5 years then the real variable rate starts to kick in.
Interest only type is self explanatory in the sense that you are being ask to pay only the interest mostly for a period of time. After the specified time has lapse, you will start paying the principal.
Fully amortization is one where your monthly payments are a combination of all the interest charges and additional payments towards the balance. This is very good option as it will reduce your balance every time you make your payments, thus paying off the mortgage loan will be faster.
The home equity type of refinance is where you borrow against your equity on the house and use it as a collateral or security for your borrowings. You then be able to get the money in the form of a revolving credit line or cash.
So now that you know and understand the different types of mortgage refinancing loans, you are not going blindly into applying to refinance your mortgage loan. Learning, understanding and knowing what the types are can really help you make an informed decision when the time comes to refinance your mortgage loan.
By: Julie Viola
Option ARM Refinancing Loans
November 3rd, 2009
There are many products available that are included under the umbrella of refinancing loans; one of them is the Option ARM refinancing loan. ARM stands for adjustable rate mortgage and while it is a popular option, before you apply for one, there are a few things you should know.
An option ARM refinance loan is possibly the most flexible type of loan on the market. With the option ARM refinance loan, you have four different options to control your loan payments each month.
For instance there are two options that allow you to pay less than the principle and interest that are normal for all standard loans. Instead of paying both the interest and principle, you can choose to pay either the minimum payment or interest only. Minimum payment is the absolute minimum you can pay on your monthly loan payment. This type of payment is usually term interest deferred, because not only are you not paying the principle, you are also not paying some of the interest. The interest and principle are tacked on later on in the life of the loan according to the specific loan schedule. It should be noted that the minimum payment is usually increased every year to keep the homeowner somewhat in line with their necessary payments.
An Interest only option allows the homeowner the option to pay only the interest on the loan deferring the principle. Interest only payments are a great way to increase cash flow, when employment is tight or if you would rather use your monthly income for other types of purchases or investments.
Besides two options for paying less than the principle and interest of the loan, you also have two options for paying both your principle and interest. The first type of payment option is called the 30 year amortization payment. You pay your loan according to a standard loan in which you pay the principle and interest for a full 30 year mortgage term. The other type of option available is the full 15 year amortization payment. If you have extra income and would like to pay down your debt quickly, you can choose the option of paying off your loan in a 15 year schedule.
It should be noted that this type of mortgage is not for everyone. For instance, seasonal employees might benefit from this type of mortgage especially during the slow season and savvy homeowners that manage their money well can also benefit. However, this type of loan is not for the person looking to pay the least amount possible due to a lower income. In situations like these, this loan can increase the risk of financial problems.
By: Connie Barker