Choosing to refinance a mortgage can be a very challenging task. Although the prospect of lower interest rates, lower monthly payments or withdraw money out of your home to use for other purposes may sound appealing, there are a number of factors that homeowners should consider when deciding whether the time is right.
Following are five factors to consider when making this decision.
First Low interest obvious factor in whether to refinance the interest rate. Fortunately, they tend mortgage rates in Texas to be lower than in other regions because of perceived lower risk of our housing. If mortgage rates have fallen since the loan was originated or the fixed price is relatively low and you're currently in an adjustable rate mortgage, refinancing could make sense. In the case of conversion of adjustable rate loans to fixed rate loans, interest, your savings may not need to be substantial if the main goal is to remove the risk of increased interest from future budgets. The low rate environment, you might have the opportunity to lower monthly payments while keeping the term of the mortgage is approximately the same. You can also consider refinancing both mortgages to keep your payments in line, but allows you to pay off the loan sooner. With any of these options, interest rate your savings along the period of mortgage can easily amount to thousands of dollars.
Second Increased equity in your home unlike many of the country, many Texas residents, and especially South Texas communities such as Spring, Tomball, The Woodlands and Houston have experienced an increase in the value of their home where it was purchased for a strong economy that continued to thrive on the energy crisis in 2007-08. Furthermore, home affordability in Texas is still high compared to the rest of the U.S., which means it will probably be more ready source of buyers, but in markets like Las Vegas or Southern California. Unfortunately, unlike brokerage account, you can not easily access that money unless you're selling your home. Another option would be to pursue cashout refinance as you would refinance a higher amount than the current loan balance. Because interest on first mortgage is likely lower than the credit card or other unsecured debt, and probably tax deductible, paying off other loans, cash out refinance can make good financial sense. Keep in mind that there are certain laws in Texas limiting cash out refinances to 80% of the value of the home, so your ability to pursue this policy will be limited to the amount of equity in your home. In cases where you increase either term loans or interest rates have fallen, this strategy can afford the monthly payment to be the same, but you have to remember to fund more basic inevitably means you will increase the total mortgage your debt. There is no free lunch!
Third You're still in the Early Years of the mortgage loan in the first years of your payment plan, the payment is going to be key, great for income tax, but not so large that paying off your loan any time soon! However, this is where it makes most sense to refinance. When you are in later stages of a loan, the payment goes to principal, so as to minimize the impact of lower interest rates. Usually, if you're just trying to reduce the rate on your loan, you'll probably go better if you refinance within the first ten years of 30-year mortgage. Also if you are considering taking cash out of your home when the first mortgage balance is low, you better take out home equity line of credit or second mortgage. As we stated earlier, the ability to take cash out refinance is limited due to state law.
4th You're going to be in your house to maximize the value of refinancing, you need to stay in your home long enough for your interest savings against the closing costs. For example, if mortgage refinancing will cost $ 3,000, and monthly payments reduced by $ 200, you only need to be in your house for 15 months to break even. On the other hand, if the payment is only going down to $ 75 per month, it will take you 40 months. While we all know we'll never go, we suggest. The average homeowner moves approximately seven years, so you should keep this in mind when making your decision.
5th You have a large Mortgage Balance While many analysts would say it only makes sense to refinance if you can lower interest rates by 1.5 to 2%, this is not always the case. Higher mortgage credit, the greater the overall impact of lower mortgage rates. Whereas 1% drop rate can not offset the closing costs of $ 100,000 loan, it may make economic sense for a $ 400,000 loan. Once again, you have to weigh the time to recoup the closing costs you will incur a total growth of your savings.
Mortgage broker can help running through different scenarios with you to determine whether refinancing makes sense, and what programs and lender is best for your needs. You can also find a variety of refinancing calculators on the web that can assist with research.
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