When It Pays To Refinance Your Mortgage — Literally


EditPosted November 13th, 2012 by Somerset Lending and filed in Personal Finance Tags: Loan Term, Mortgage, RefinanceAdd a Comment


To refinance a mortgage means to pay off your existing loan and replace it with a new one.

There are many reasons why homeowners opt to refinance, from obtaining a lower interest rate, to shortening the term of the loan, to switching mortgage loan types, to tapping into home equity.

Each has its considerations.

Lower Your Mortgage Rate
Among the best reasons to refinance is to get access to lower mortgage rates. There is no “rule of thumb” that says how far rates should drop for a refinance to be sensible. Compare your closing costs to your monthly savings, and determine whether the math makes sense for your situation.

Shorten Your Loan Term
Refinancing your 30-year fixed rate mortgage to a 20-year fixed rate or a 15-year fixed rate is a sensible way to reduce your long-term mortgage costs, and to own your home sooner. As a bonus, with mortgage rates currently near all-time lows, an increase to your monthly payment from a shorter loan term may be negligible.

Convert ARM To Fixed Rate Mortgage
Homeowners with adjustable-rate mortgages may want the comfort of a fixed-rate payment. Mortgage rates for fixed-rate mortgages are often higher than for comparable ARMs so be prepared to pay more to your lender each month.

Access Equity For Projects, Debts, Or Other Reasons
Called a “cash out” refinance, Rochester Hills homeowners can sometimes use home equity to retire debts, pay for renovations, or use for other purposes including education costs and retirement. Lenders place restrictions on loans of this type.

A refinanced home loan can help you reach specific financial goals or just put extra cash in your pocket each month — just make sure that there’s a clear benefit to you. Paying large closing costs for small monthly savings or negligible long-term benefit should be avoided.

Many lenders offer low- or no-closing costs options for refinancing. Be sure to ask about it.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Joshua Raymond November 15, 2012 at 02:38 PM
Brad, at one time, it seemed like mortgage modifications were easily available. Is there anything similar for people who are up to date on mortgage payments, would like to take advantage of lower rates, and would prefer to skip the hassle and expense of a refi?
Meredith McCutcheon November 15, 2012 at 04:32 PM
We just refinanced our home in Rochester Hills into a 30-year fixed, and it was one of the best financial decisions we've made. We rolled our closing costs into our monthly payments, and we were able still able to lower our monthly mortgage payments by about $200. Best of all, our first mortgage payment with our new mortgage company is not due until January 1st, giving us two whole months without a payment (just in time for the holidays!!). In our situation, we didn't pay a single penny out of pocket to do this, so it really is worth looking into!
Erin November 16, 2012 at 06:40 PM
Joshua - HARP 2.0 is for the on-time, never late, good credit score folks. Easy, and nearly always no closing costs. Who is eligible for a refi under HARP 2.0? According to www.MakingHomeAffordable.gov, in order to qualify for the program your mortgage must: Be owned or guaranteed by Freddie Mac or Fannie Mae Have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009 Not have been previously refinanced under HARP, unless it is a Fannie Mae loan that was refinanced under HARP between March and May of 2009 The current loan-to-value ratio on a mortgage also must be greater than 80 percent to be eligible for refinancing, and you must be current on payments for the last 12 months. On its site, MakingHomeAffordable points out that these criteria are for guidance only and that interested borrowers should call their mortgage servicers to find out if they qualify. http://www.cbsnews.com/8301-505145_162-57437412/what-harp-2.0-can-and-cant-do-for-you/
Joshua Raymond November 18, 2012 at 04:10 AM
Erin, thank you very much for this information!
georges March 08, 2013 at 05:52 AM
Refinancing really when it is applicable can give homeowners couple of benefits.


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