Choosing to refinance your mortgage can be a very challenging task. While the prospect of lower interest rates, lower monthly payment, or pull out your home equity for other purposes may sound appealing, there are several factors a homeowner should consider when deciding whether the time is right.
The following five factors to consider when making this decision.
1. Low interest The most obvious factor in whether to refinance the interest rate. Fortunately, the mortgage rate in Texas is generally lower than in other parts of the country due to the perceived lower risk of our housing market. If the mortgage rate has fallen since your last loan originated, or if fixed rates are relatively low and you're currently in an adjustable rate mortgage, refinancing would make sense. In the case of a conversion from an adjustable rate loan to a fixed rate loan, your interest savings not need to be that significant if your primary goal is to reduce the risk of rising interest rates and to remove from your future budget. In a low rate environment, you may have the opportunity to lower your monthly payment when the term of your mortgage about the same. You can also consider refinancing of the term of your mortgage payment to your consistent, but allowing you to pay off the loan sooner. With either option, your interest savings along during the term of your mortgage easily reach thousands of dollars.
2. Increased equity in your home Unlike many areas of the country, many residents of Texas and especially South Texas communities such as Spring, Tomball, The Woodlands, and Houston have experienced increase in the value of their house because it was purchased by the strong local economy continues to thrive in the energy crisis of 2007-08. Moreover, home affordability in Texas remains high relative to the rest of the U.S., which means there will likely be a more ready source of buyers than in markets like Las Vegas or Southern California. Unfortunately, unlike your brokerage account, you can not easily access these shares unless you sell your home. An alternative would be to aim for a payout you refinance refinance for an amount higher than your current loan balance. Because the interest on a first mortgage is likely to be lower than credit card or other unsecured debt, and probably tax deductible, paying off other debt in a cash-out refinancing may make good financial sense. Keep in mind there are specific laws in Texas to limit cash-out refinances to 80% of the value of a house, so your ability to pursue this strategy will be limited by the amount of equity in your home. In cases where you either increase the term of your loan or the interest has fallen, this strategy, your monthly payment to remain the same, but you must remember that funding of additional principal inevitably means that you increase your total mortgage debt. There is no free lunch!
3. You are still in the early years of your mortgage loan in the first year of your payment schedule, the majority of your payment going to principal, perfect for a tax deduction, but not so great for paying off your loan any time soon! However, this is when it makes the most sense to refinance. When in the later stages of your loan, most of your payment goes to principal, so to minimize the impact of reduced interest rates. Typically, if you're just looking to reduce interest on your loan, you will probably fare best if you refinance in the first ten years of a mortgage 30 years. Alternatively, if you are considering getting cash from your home if your first mortgage balance is low, you're better off with a home equity line of credit or a second mortgage. As we said before, your ability to take cash-out refinance will be limited due to state law.
4. You plan to stay in your home's value to maximize the refinancing, you need to stay in your home long enough to you for your interest savings to offset closing costs. For example, if refinancing your mortgage will cost $ 3,000 and your monthly payment will be reduced by $ 200, you just have to stay in your home for 15 months to break even. On the other hand, if your payment is only a decrease of $ 75 per month, it will give you 40 months. While we all think we ever move, we will be clues. The average homeowner is about every seven years, so you should keep this in mind when making your decision.
5. You have a large mortgage balance, while many experts would say that it only makes sense to refinance if your rate is 1.5-2% lower, this is not always the case. The larger your mortgage balance, the greater the overall impact of lower mortgage rates. Whereas a 1% reduction in rate can not outweigh the costs of concluding a loan of one hundred thousand U.S. dollars, it can be economically justified to make a loan of $ 400,000. Again, you must weigh the time the closing costs you will incur interest on your total savings to recoup.
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Tuesday, September 27, 2011
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