Refinancing a home mortgage is a big financial decision that should be done only with careful consideration. Mortgage rates have fallen all across the country and homeowners are rushing to refinance their mortgage to take advantage of the near record lows. However, refinancing a home loan is not always the easiest thing to do, it takes some money and time. Your personal financial situation also plays a role in the effectiveness of a mortgage refinance.

Fixed rate and Adjustable rate Mortgages.
If you currently have an ARM (Adjustable rate mortgage) and have seen your payments go up, you should definitely look into refinancing your home. If you have an adjustable rate that is low that can be a good thing, it is when it inevitably goes up over time that the high interest rate starts to really effect your financial stability. Odds are with a adjustable rate mortgage you will end up paying more in the long run than a fixed rate mortgage.
Fixed rate mortgages are usually the best bet for financing a home. Because the interest rate on the loan never changes in time, you know exactly what you will have to pay for the life of the loan. Financial stability is also something that comes with fixed rate mortgages. Although sometimes it is beneficial to have an ARM overall if you plan on living in your home for 5 years or more usually a fixed rate mortgage is the way to go.

Do not forget to consider the costs of refinancing.
When considering refinancing make sure you know how much closing costs and fees will add up too. Calculate the amount of time it will take to break even from the refinance, this is called the “Break In” period, and your mortgage lender can help you determine that. Sometimes refinancing fees can add up to thousands of dollars and do not make sense if you will be leaving or selling the home anytime soon.

Consider the amount of equity you have in your home.
If you have been living in your home for a while and been making your payments you have probably built up a good amount of equity. Usually if you have 20% equity in your home you will be able to refinance your loan for a lower total amount. This lower loan amount will mean lower monthly payments for you every month. This can be useful in a lot of refinancing cases when people have been living in their home for awhile.

Consider the terms of your mortgage.
Generally refinancing a home mortgage extends the length of it. Say you currently are 10 years into a 30 year mortgage and decide to refinance. Odds are when done refinancing you will have another 30 year loan not 20 years left to pay. However, some homeowners wish to pay off their mortgage earlier than expected and refinance into a shorter loan and maximize the low interest rates available now.

Make sure that you practice patience and do some simple research on potential mortgage lenders, your credit rating, and market conditions and rate averages. This is the best way to ensure you save the most amount of money possible when refinancing your home mortgage.

-M Petrone

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