Refinancing a Mortgage - Refinancing Explained [mortgagegoalrates.blogspot.com]
Since that first article above (written in 2008 with rates around 6.0%), 30 year mortgage rates (ChicagoOptions: ^TYX) have consistently fallen for four consecutive years, making now actually the best time in a generation (so far) to refinance ... Thinking of Refinancing Your Mortgage? What's the Rush?
Homeowners thinking about refinancing might be somewhat confused and bewildered by the amount of possible options to select from. Investigation of these options will help clarify the refinancing products and offer an indication of the most advantageous routes to take. This article outlines the types of mortgages on the market, along with recommendations on points to remember before a final decision is made.
Types of Mortgages
There are two common choices of mortgages available for refinancing, together with a third concept. Choosing the appropriate type of mortgage for the homeowner's circumstances is the largest decision that homeowners confront.
The first common option is the fixed rate mortgage. The interest rate remains permanent throughout the duration of the loan. This is beneficial for homeowners who are able to negotiate a low interest rate.
The second common option is an adjustable rate mortgage.
The interest rate will fluctuate through the term of the loan. The fluctuations are dependent on indexes, such as the prime. The rate will rise and fall in accordance with the index's increases and decreases. This type of mortgage is not as secure as a fixed rate mortgage. Homeowners with questionable credit rates are often offered this product.There is a limited protection built into adjustable rate mortgages. A clause incorporated into the loan may limit how many percentage points the rate of interest is permitted to increase during a specified amount of time. This protects the homeowner from significantly higher mortgage payments due to marked interest rates hikes.
The third concept is the hybrid mortgage. This mortgage has combined elements of the fixed rate mortgage and adjustable rate mortgage.
The first specified portion of the mortgage would come with a fixed interest rate, with the remainder of mortgage having an adjustable interest rate. Hybrid mortgages usually have a lower fixed interest rate than the standard fixed rate mortgage. Lenders have introduced this concept to solicit customers.Closing Costs
Homeowners need to calculate the closing costs attached to a mortgage before making a commitment to refinancing. Closing costs can add up to a substantial amount. Typical closing costs including application, appraisal and loan origination fees, together with other miscellaneous charges. These costs need to be compared to the savings the homeowner expects to receive from refinancing.
Overall Savings
Overall savings are an aspect the homeowner needs to thoroughly calculate. If there are no overall savings, refinancing may not be advantageous. The goal of most homeowners in refinancing is to realize some savings at the end of the day. There are some homeowners, however, who are concerned with lowering their monthly payments. If their primary consideration is not focused on overall savings, then refinancing may be advisable.
Overall savings are dependent on a number of factors. The interest rate of the old mortgage is compared with the rate of the new mortgage. Also, the amount of the existing mortgage is relevant. How long the homeowner plans to own the home has an effect.
It should not be assumed that the money saved by reducing a previous interest rate to a more favorable one is the sum total of savings. Closing costs must be deducted from the interest savings. If the result of this subtraction is negative, refinancing may not be worthwhile. Alternatively, if the end result is positive, the homeowner will have a net overall savings.
This information should assist the homeowner in deciding if refinancing is a viable option.
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