Mortgage Refinance - Advantages and Disadvantages

Your friend was able to get a real good deal when he went to refinance his mortgage. You know of others that came out better, too - but for some reason you have not yet tried to get your own mortgage refinancing. Well, the truth is, finding out about your own prospects of getting a better situation are only a few minutes away. In this article you will find a few pros and cons about it that should enable you to make up your own mind as to whether mortgage refinancing is for you.

Let's look at a few of the pro reasons first. By refinancing you could...

Get A Better Loan

It is possible that you may have purchased your home with a hybrid loan, or a variable interest rate mortgage. At the time, you were really excited because it enabled you to get the house you really wanted, and it gave you good low payments. But soon, you will either have to pay it off, or go to much higher payments. Recently, Martin Crutsinger, Economic Writer for the Associated Press (March 24, 2006) reported that “The Federal Reserve has raised short-term interest rates for nearly two years, and those increases finally are starting to trigger a sustained rise in long-term borrowing costs.” By refinancing your mortgage, you could get into a more solid fixed rate mortgage, a predictable rate of interest, and you may even get tax deductions for it.

Have Lower Payments

If you are facing higher payments because you initially bought an ARM, or have already taken out a second mortgage, and have some credit card debt (or other), it could be a much better idea for you to consolidate it into a single new loan, by mortgage refinancing. This could give you a lower overall debt, an d a lower payment.

Reduce The Length

If you currently have a 30 year fixed rate, or a 40 year fixed rate mortgage, then you are paying a lot of extra interest. By getting locked into a shorter-term fixed mortgage interest rate, you could save a lot of money.

Another Option – A Second Mortgage

Another option may be just getting a 2nd mortgage based on a home equity line of credit. Home equity loans can also be used to give you the possibilities of debt consolidation, home improvement, and possibly even a monthly savings - if your credit card debt is high, then this option can bring about a lower interest rate and lower monthly payments for you.
Now for a couple of reasons that are against it - the cons side.

The Cost

Getting a new mortgage could cost a pretty penny. You need to see if there is a penalty for early pay off on your existing mortgage. It also could be more costly if you have any bad credit ratings - good credit is always more desirable. Costs for a new mortgage could come to an amount that might take you 2 or 3 years to recoup before you are able to see any real savings. For instance, if your costs for refinancing come to $1000, and you are able to lower your payments by $50 per month, then that means it will take you 20 months before you really begin to save anything. Or, if you are considering selling the house within that time, it really would not be much benefit to you.

How To Determine If It Is Better For You

Guidelines given by the financial industry tell us to consider mortgage refinancing to be a better idea if your current level of interest on the loan is more than 2 points higher than market level. Other suggestions are to do some real research into the prospect of refinancing before you ever sign something that you might have years of regret for later.

If you want to get lower rates and pay off the mortgage as quickly as possible, and are pretty sure that you can, then consider getting an ARM. Make sure that the fixed mortgage interest rate portion of the loan is for a long enough period to be able to pay off the loan – without any penalties for early pay off.

Michael Valles is an experienced writer who focuses on refinancing and debt consolidation. You can read more of his refinance articles at Mortgage Refinance and learn more about refinance and home equity loans for people with all types of credit.
To get more free second mortgage & refinance tips, please visit Refinance & Second Mortgages.
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