Typically, homeowners wait around seven years or less before they sell, or decide to refinance their mortgage. With interest rates as low as they are now, many homeowners are refinancing much earlier than usual. Here are some good and bad reasons to refinance a home loan.

Refinancing May Be a Good Idea If:

-You can get a lower interest rate, with no additional cost to you. No point, no fee loans have been very popular for over 10 years. If your home loan is big enough, you may qualify got this type of no fee loan. This may be a very obvious decision for many people, and not so obvious for some others. Many people can reduce their mortgage payment amounts, or, even better, reduce the length of their home loan.

-You have a good reason to use the equity you have built in your home. While you should not use your home to buy things that you do not really need but it can come in handy for serious expenses. Some of the better reasons for a cash back refinance are home improvements, paying tuitions, hospital bills, or debt consolidation. The money you can get from a cash back refinance is often at a much better interest rate than a personal loans rate.

-There is a balloon payment that will be due on your home loan. This can be an enormous cost, and many homeowners just do not have the money to cover it, even though they knew it was coming. Refinancing can help you control this, and possibly use some of your homes equity to cover it.

-You wish to refinance into a new mortgage from your adjusted rate mortgage. Many homeowners have an ARM loan which has risen in rates, causing them to have to pay much more every month for their mortgage. If the closing costs are not too high, refinancing into a stable, fixed rate mortgage may be a good decision.

Mortgage Refinancing May Be a Bad Idea If:

-You will have to pay a mortgage prepayment penalty. Many home loans have this fee built into them and it usually costs around 2% of the total home loan amount. Most homeowners who have this fee in their mortgage do not even know it exists until they try to refinance. Contact your mortgage lender or bank and ask about the fees associated with your mortgage if you do not already know them.

-If you have been in your home loan for a long time, say 15 or 20 years into a 30 year loan, you may not truly benefit from refinancing. Although you may be able to get better interest rates, you would also be extending the length of your home loan which will end up costing you much more in the long run.

-If your credit rating has gotten worse since you purchase your home, or you have missed some payments on either credit cards or home loans, the interest rates you will qualify for may not be so good. It is probably a better idea to wait, try to fix your credit as much as possible, then attempt to refinance. This way you will get truly beneficial mortgage rates.

-If your credit is either maxed out or near its limit, and your home has little to no equity left in it, refinancing ma not be worth it. Many traditional mortgage lenders and banks need 20% equity in order for you to get approved for refinancing. Homeowners who want cash back may need 25% or more in equity in order to do it. Otherwise, your interest rates will be much higher than they could have been.

-M Petrone

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