Right now refinancing is very popular as many people are trying to avoid the subprime crisis or anything like it. When the market is shaky, many people start looking at all of their bills to see if they can make any changes that will make things more affordable. Many times refinancing can help you lower your monthly payments to make your overall financial life much more stable. While it can be very appealing to just jump into a mortgage refinance loan, this isn’t always the best option.
Mortgage Refinance May Not be for You
Before you get carried away with the idea of saving through mortgage refinance, you may want to slow down and actually do the math. There are many times when people get carried away with the idea of saving through refinancing that they don’t bother to do the math. Depending on what sort of loan that you have now, the costs associated with refinancing do not justify the savings because they are so limited. This is why many experts say that if you are refinancing simply to save on your monthly payment that you should not bother if you are not going to lower your interest by at least two to three percent! This is huge and when you can lower it by this much it is worth it, but many times you cannot get this much of a change in interest rate due to market rates.
A mortgage refinance may not be for you depending on how much longer you are going to be in your home. You can refinance at any time, but when you refinance you need to consider how long it is going to take for the process to pay for itself. It is not uncommon for refinancing to take 42 to 63 months to pay for itself and if you don’t plan on being in the home for that long, it may not be worth refinancing at all. Have your mortgage banker help you do the math to determine how long it will take for the loan to pay for itself and see if it is worth refinancing or if you should just stick it out until you move.
When you are looking at mortgage refinance you really need to be cognizant of the numbers. It is easy to get caught up in the expectation of saving only to find that you aren’t going to save at all. When you start applying for refinance loans you really need to pay attention to the numbers to be sure that the costs and the savings all mesh together well. Sometimes the actual cost of the loan is more than the savings. You might be wondering how this can happen, but when you refinance you are paying three to six percent of the principal balance on the loan, which usually means thousands of dollars.
The bottom line is that you should not simply rush into refinancing assuming that you will save. You need to be very careful and see what you can do at every turn to save on any fees associated with the loan. If the costs get to be too out of hand you may very well be better off sticking with the loan that you already had and waiting for a more opportune time to refinance and change things up a little bit more.