when does mortgage refinance make sense?
i 'd like to know how to best use mortgage refinance, and usually for what reasons people refinance. Also does refinance ultimately cost more? I don't need to lower my monthly payment, so I don't have any clear purpose in mind. It is just that I have heard a lot of different views on refinance. I hope to get some insights and analysis from you out there. Thank you.
- Quicken LoansLv 51 decade agoBest Answer
There are several reasons to refinance. However, it really depends on your unique situation.
Besides lowering their mortgage rate and monthly payment, the biggest reason people decide to refinance usually would be to consolidate debt, or take cash out their home or investment property (in other words borrow money against their home).
Another reason, especially lately, is to refiance out of an ARM (adjustable rate mortgage) to keep mortgage payment from rising.
Any of these would be a great reason to refinance. Hope this answers your questions. I've included a link to our refinance page for more information and scenarios for refinancing.
- Anonymous1 decade ago
This depends wildly on a variety of factors your current income? your future income? your plans to stay in your home long term or not? is your current rate low? is your current rate fixed or currently adjustable? Is your rate fixed for at least a few more years? Do you have a deferred interest loan? Are you comfortable paying ALL of your bills on time? How much equity do you have? Are the values in your area going up? Staying about the same? Plumeting? Do you have kid(s)? Do you plan on having kid(s)? If you have or plan to have kid(s) do you live in a good school district? Is your home the right size for your family? etc.
Ok so now that you know I am answering this question semi blind lol I will give you some "basics"
If you have a deferred interest loan or a loan that is currently adjusting or has less then 2 years to adjust and you plan on staying in your home long term get the hell out of that loan and get a FIXED rate! Get a 15 year fixed if you can afford it because the rate is lower and you save tens of thousands of dollars in intereste over the life of the loan and you will own your home out right that much sooner.
To the person who says don't consolodate debt that may or may not be true. IF you are having trouble paying your bills and a consolidation can save you a LOT of money a month ($300 or more) then it "may" be a good idea to do so! ONLY if you NEED that payment relief in a bad way! Otherwise the prior poster is correct. Also, as long as doing so is not eating up too much of your equity! I used to do debt consolidation and I would save people $500 a month or more! This made the difference between paying everything on time and not! So to say that debt consolidation is a no no under ANY circumstances is wrong. Although in general this is not a good idea but it CAN be exceptionaly useful in some situations. Also, when you consolidate your credit card debt now becomes tax deductable which gives you further savings.
I hope this helps!? lol!Source(s): Former mortgage broker for over 8 years.
- 4 years ago
You are one of the few people I have seen give this some thought. Some people refi, and therefore just add more debt to their life. Re-financing is not free. Closing costs can tack on 6% of the loan value. Most people refinance a 25 year loan back into a 30 year loan and don't realize that now they have more debt than they did before due to the closing costs. They are just happy they got their mortgage payment lowered. Google: Should I re-finance calculator Money Magazine had an article on this. They said do not re-fi unless you can get 1.93% lower. I found this a bit extreme, but I ran the calculators and they were right given their example They also stated not to re-fi unless you knew you would be in the home for another 5 to 7 years to break even with the closing costs. And to make sure you re-fi a loan that is a shorter period of time. Again, I am surprised you are giving it some thought. Most people get all excited about a lower mortgage payment. The article stated that closing costs could be as much as 6% of the loan and suggested that this money is better spent just making extra payments to your principal periodically. Before you do this, they stated, to make sure all your other debt is paid off such as car loans, private student loans, credit cards, etc. Since they usually have higher interest rates and may not be tax deductible...
- TimLv 71 decade ago
There are any number of reasons to refinance. Many people need the lower payment. If you trade one 30 year loan for another, you will end up paying for another 30 years no matter how long you have been paying for.
You could refinance into a 15 year loan, especially if the rates drop.
We recently refinanced into an interest only to free up more available cash each month as a safety net. We can afford the payments be we leveraged our home into 2 additional rental properties and if one sits vacant we can pay just the interest if needed. With our interest only, we can pay additional amounts toward principal each month.
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- Anonymous1 decade ago
rule of thumb if you can save 1% or better it is good to refinance! some would say that paying off credit card debt is a bad idea but if you are paying a interest rate of 14% on a card it is best to refinance and include it if you are also getting a lower rate on the mortgage than you started with!
Its best to have a professional look over the idea and see if it makes sense. always get a fixed rate mortgage for stability.
contact someone and see if it makes sense you may find you save alot of money (depending on what rate you have currently) try directlendigplanet they should be able to tell you if it makes sense and show you on paper within a few minutes
- 1 decade ago
People refinance to get a lower rate or into a fixed rate or maybe even a interest only loan. It all depends where your current rate is on your home. Also people refinance to do debt consolidation take money out of there equity to pay of bills or remodel there home. In which some equity sometimes a second mortgage or heloc/home equity loan comes in handy.
- Anonymous1 decade ago
to get a LOWER rate or into a fixed rate or maybe even a interest only loan.
President Bush have implemented an FHA refinance program called "FHASecure". To qualify, borrowers must meet 5 criteria:
1) History of timely mortgage payments before their adjustable rate increased
2) Rate will re-set between June 2005 and December 2009
3) 3% equity in home or 3% cash
4) Sustained employment history
5) Income must meet qualifying guidelines.
I found interesting information about your answer & the best options here. (mortgage opportunitty refinancing )
- 1 decade ago
If you can lower your payment or change to a fixed from an adjustable rate loan...why wouldn't you want to save some money? Some people also use a refinance to fund a college education or add on to their existing home or remodel. If you consider this, please be aware of the potential consequences of removing the equity in your home. Many are facing foreclosure now as they used their homes as a piggybank. When house prices began to drop they found that they actually owe more than what their home is worth.Instead...Be conservative.
- 1 decade ago
You can refinance to pay off debt, cashout, remodel your home, lower rates. Go from variable to a fixed. Get out of a negam loan, get out of a balloon loan. There are tons of reasons, maybe you want to go from 30 year to a 15 year or you're just tired of dealing with the bank that has your loan. You can tap into the equity in your home and invest it or maybe you need to pay for your childrens college education. It's really something that changes from individual to individual, so it's really hard to say how to best use a refinance, because it depends on what your situation is.
- 1 decade ago
Yey! Refinancing....what joy!....something you should investigate, because there are tricks in refinancing too as well as selling or buying a home.
Compare rates and DO NOT be rushed into signing anything no matter how well you get along with the lender. Their job is to get along with the client to get a commission on the refinanced loan. So be careful litirally!
Avoid signing a variable rated loan of any kind and ONLY look for fixed rates and be diligent in comparing rates to get the one you can afford to pay. Read up on lender laws that are always changing to keep up on your knowledge to throw back at a lender should they get to that con stage.
You want your money back through a future sell, then it is most wise to use your money for any upgrades needed to keep current with the market demands and laws:
Such as updated earhtquake straps for the water heater, if you live in California, emergency gas shut off valve, f you live in CA, water regulator, updated certified termite treatment/report, etc so you don't get had in escrow if you were to sell your home at a future date. I would check with the city or even an escrow company first on what list of items that most people get stuck with in escrow who are the sellers and get the pricing on each item. Take that into consideration dearly to CYOA. That way you will know how much you need to refinance for to keep your home current. Unless you are current, then I would refinance to possibly update a room such as a kitchen, bathroom or even possibly a new addition. Think about the reward, but put your self in the buyers shoes and walk through your house and think of what turns you off, get estimates from qualified contractors so that refinance can help fix that.
Avoid using your equity on the refy to pay for vacations and extravagant endeavers as this will just damper your future profit on any future sell of that house. Or even make for a worse monthly payment.