| | Before you refinance your home, it is import to consider all your
options. First of all, ask yourself, Will it really save me money to
refinance? If you determine that it will, you then must decide what
type of new loan is best for you and your unique situation.
In order to make money when you refinance, you must first consider the
“break-even” period. This is the period of time that it takes for the
savings on interest to cover the cost of refinancing.
How long will it take you to break even? That depends largely on the
difference between the interest rate on the new loan versus the old
loan. The smaller the difference, the more time it will take to break
even.
Your lender will most likely tell you how long you will have to stay in
your house to break even, but beware! The break-even period is NOT the
cost of the new loan divided by the reduction in your monthly mortgage
payments.
This equation is misleading to the customer, as it does not factor in
the length of either loan. If you refinance from a 30 year loan to a 15
year loan, your break-even period could be much shorter than the number
of months you will get from plugging numbers into the equation.
But if your refinance from a 15 to a 30 year loan, or even if you keep
the same term, this equation could lead you to think that you will
break even in a very short time, when in fact your break-even period
could be much, much longer.
What type of refinance mortgage loan is best for your unique situation?
Often, homeowners who have decided to refinance are tempted by the
commercials advertising “no-cost” refinance loans. Can you really
refinance your mortgage loan for free?
The answer is yes, but be careful. While there are true no-cost loans
available from credible lenders, there are also dishonest lenders who
can take advantage of you if you do not know your stuff. A true no cost
loan means that the lender pays all the costs and fees on your behalf,
does not charge you any lender or broker fees, all without increasing
the final loan amount. Dishonest lenders include their fees within the
loan, keeping them hidden, thereby increasing your monthly payments,
which could actually cost you more money than paying the fees up-front.
Another important decision to make when you refinance is, Should I
choose a fixed or adjustable rate mortgage? If you currently have an
adjustable rate mortgage, or ARM, then refinancing to lock in a low
interest rate can be very advantageous to you. If, however, you do not
intend to stay in your home for more than a few more years, and your
rate will not adjust for another couple of years, then refinancing from
an ARM to an FRM could cost you much more than it saves.
When you decide to refinance your mortgage, it is important to consider
all your options. It is also important to have a thorough understanding
of your current situation, so you can compare loan offers and select
the best one for you. Refinancing should put you closer to your
long-term financial goals. Something that looks like a good deal in the
short term may become a decision you will regret later on. Do your
research, know your options, and you will be happy to sign on the
dotted line.
Article Directory: http://www.articledashboard.com
Robert Michael is a writer for Apre Finance
which is an excellent place to find finance links,
resources and articles. For more information go to:
www.aprefinance.com
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| | Posted 9/28/2006 5:14 AM - 83 Views - 0 eProps - 0 comments
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