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 ‘Refinancing Mortgage’
Refinancing Your Home Loan? When Should You Refinance Your Home?
December 15th, 2009
If you have a current mortgage and are unhappy with the interest rate or the amount of the monthly payments, it is possible to refinance your home and eliminate your problems. But before you call your lender, there are some questions that you should ask yourself in order to determine whether or not it’s the right time for refinancing your mortgage loan.
The first question that you should ask yourself is if you have the cash on hand to pay the fees. Depending on the amount of your mortgage, and the specific fees that your lender will charge, you could pay anywhere from a couple of hundreds dollars to a few thousand. Be sure that you’re financially ready for the move before applying for the loan.
Next, you should take a look at the current interest rates compared to the ones on your existing mortgage, and then decide whether or not a refinance would help your situation. For example, if you have an ARM mortgage, and the interest rates are at an all-time low, you might want to refinance your loan and turn it into a fixed rate so your payments won’t go up again as rates rise. In addition, if you have a fixed rate, but bought your home when interest rates were higher, you might want to refinance in order to lower yours.
If you find yourself with a lot extra debt, you could take advantage of a cash-out refinance loan. With this type of loan, you add on an amount to your home loan, refinance the entire thing at a lower interest rate, and then take the “extra” money out and pay off your debt. This will allow you to reduce the amount of debt you owe (because the interest rate will be lower), and at the same time, reduce the amount of the monthly payment.
Most experts agree that you shouldn’t go to the trouble or expense of refinancing your home if you don’t intend to stay in it for at least three years. Otherwise the cost of the process would likely be more than the overall savings.
To view our recommended sources for mortgage refinance loans, visit: Recommended
Refinance Mortgage Lenders Online
By: Carrie Reeder