In today’s economy homeowners are looking for ways they can save money. One of the methods of money-saving that is really popular is mortgage refinancing. Refinancing is basically replacing your current loan agreement along with the interest rates with a new one. When done properly it is a process that enables you to get a lower interest rate, change your repayment period, and switch from a fixed mortgage rate over to a flexible mortgage rate (or vice-versa), thus consolidating your debts. But refinancing should never be entered into lightly. You should closely examine the costs and the benefits.
Homeowners who wish to undertake mortgage refinancing should closely examine their reason for doing it. One of the possible benefits of refinancing is to get a lower interest rate. Lowering your interest rate on your mortgage results in lower monthly payments and increases the speed at which you can build equity. In all actuality, the reason most homeowners refinance is for accessing their home equity. One of the main reasons for accessing their home equity is for remodeling. This adds home value, but homeowners should be careful about extending how many years they have for paying the interest. It needs to be worth the value they add by remodeling.
One thing homeowners should watch out for is playing around with debt. They don’t want to be picking up any unnecessary amounts. Consolidating debt can definitely be beneficial but is not always necessary. The logical reason for refinancing is to get a lower interest rate and consolidating all your higher interest debt. This can be a smart move.
If a household has a solid payment history of making payments on time with higher interest debts, then they are very likely to see the benefits of consolidating debts with their mortgage. But most households have mismanaged their high interest debts which means they are very likely to continue in those habits once they consolidate. However much credit they can free up is more than likely going to be used for racking up even more high interest debt, so the cycle of debt gets perpetuated.
Given our current state of economy here in America, deciding to undertake mortgage refinancing needs to be well thought out. While the mortgage rates are fairly low now, it doesn’t mean you should jump right into mortgage refinancing. Homeowners need to consider mortgage refinancing if and only if they plan to stay in their homes for at least five more years. The reason is that cost associated with refinancing is usually around 3% to 6% of your principal loan plus the costs associated with the applications for refinancing, which may take at least four years for you to recoup.
Before you undertake mortgage refinancing you need to know what your credit rating is. You should be aware of any and all outstanding loans, and how much debt you actually have. The only way you can benefit from mortgage refinancing is to keep your financial habits sound.