Things to Consider Before You
Refinance Your Mortgage

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Things you should consider before you refinance your mortgage

There are 2 types of mortgages you can get involving your property. One is a purchase loan, which is the mortgage that you take to buy your home in the beginning. The other one is mortgage refinancing, which is the same process but what you’re doing here is you’re either paying the old loan off because you maybe borrowing additional money over. You may even be borrowing money to do improvements on your property, or you may be taking the second mortgage out to do improvements on the property or consolidate debts. There are at least 4 important things to consider whether you’re going to refinance your mortgage:

Lowering your interest rate

A lower interest rate means you’ll spend less money repaying the bank for your loan. The interest rates today are near historic lows, and chances are, you can do better than the 11%, the 7%, or even the 5% interest rates you have now.

Lowering your mortgage payments

Extending your mortgage term is ideal if you want to pay less each month. However, this is not a good thing to do because if you initially take out a 30-year mortgage amortization, and now you want to take out another 30-year mortgage amortization, you are going to end up paying more interest.

While lowering what you pay every month might give you more time to prepare or recover, the extra cost that you pay for the long term is not always worth it. Now, if the number 1 on your list is paying less each month, and you don’t care how many years you have to pay it, then you’re going to go for that even if you have to do another 30-year amortization.

Reducing the length of your loan

If you can manage to secure low mortgage refinancing rates, you’ll be able to reduce the cost of your monthly payment and at same time decrease the length of your mortgage. If you took out a 250,000 dollars refinance mortgage at 5% for 30 years, you would pay almost 230,000 dollars over the life of the loan in interest. But if you shave 5 years off that loan, you’ll save nearly 45,000 dollars. Now, imagine if you’re shaving 5 years off that loan and now you’re bringing down the interest rates as well, your savings are going to multiply.

Managing the costs of refinance

Most people sometimes forget that they have to manage the costs of refinance. In addition to the administrative fees, your house must also be assessed, appraised, and inspected. There is also a penalty if you try to make early payments to your mortgage. So, before moving ahead with the refinance your mortgage, make sure to check your current mortgage agreement details to avoid any extra penalty.

Anytime you do any mortgage activity in your house, aside from when you buy your property, is considered when you want to refinance your mortgage. And in order to save more, you must be able to decrease the length of the loan, the interest rates, mortgage payments, and manage refinancing costs.

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