If you’re looking to buy a home, your mortgage is usually the most important factor that goes into achieving financing. But there are many things that go into obtaining a mortgage. You have to lock in your interest rate at the time of your property purchase and you have to agree to the terms of the loan which involves its length of term. As your circumstances change, you might also want your mortgage to change with it. That’s the idea behind refinancing your mortgage. At Cliffco Mortgage Bankers, home loans are our business. We understand that refinancing is often an option for our customers which is why we want to let you know some tips about refinancing, so you’ll know when it’s a good idea to refinance and when not to do it.
Making Interest Rates Work for You
The most common reason that customers look to refinance their loans is to save on their monthly payment. That goes hand in hand with refinancing to get lower interest rates. According to Forbes, there are several things you should consider about interest rates, when deciding whether or not to refinance. Understand that predicting interest rates is next to impossible so don’t base your decision to refinance on your ability to prognosticate. You also need to remember that interest rates are only part of what goes into your monthly payment. And you should also consider the tax consequences of your plan to refinance. Remember lower interest rates can also mean lower tax deductions.
Refinancing and the Terms of the Loan
If you do need to lower your monthly payment in the short term, it is possible to do that by lengthening the term of your mortgage. But there is a very significant downside to that. Refinancing to a longer term mortgage means you will pay a higher interest rate.
It’s far more common to want to shorten the term of your mortgage. And you can do that without too much pain if interest rates fall. For example, according to Investopedia, refinancing a 30-year mortgage of $100,000 with interest rates dropping from 9 percent to 5.5 percent can be done cutting the term of the loan down to 15 years without much change in monthly payment. Under the 30-year loan the payment would be $804.62 and it would only go up to $817.08 under the 15-year loan.
Changing the Type of Mortgage You Have
Another reason to refinance a mortgage loan is to convert it from an adjustable rate mortgage to a fixed rate loan. Adjustable rate mortgages usually start out with low interest rates but the rates increase over the length of the loan and are often higher than what you would see in a fixed rate loan.
Finally, many customers refinance as a way to consolidate debt. If you have more than one mortgage, you can combine them all into one easy payment. If you’re trying to lower credit card bills and other debt, you should consider a cash-out refinance. According to Nerd Wallet this allows you to use the equity in your home to receive cash to pay off your mortgage. This gives you the ability to make fixed payments over a set period of time rather than keeping track of different payments. Freeing up equity money allows you to pay off your credit card debt and rids you of the annual 24.99 percent interest rate most credit card companies charge for late payments.
Cliffco Mortgage Bankers Has Refinancing Options
Refinancing is a great way to lower your monthly payment but make sure the money you save exceeds the cost of refinancing. If you’re looking to pay off your mortgage quickly, understand that refinancing usually adds years to your loan. If you’ve weighed the pros and cons and are ready to learn your options, contact Cliffco today.