Should Refinancing Your Mortgage Be In Your Future?

Posted by Nick Niesen on October 29th, 2010

Buying the house you wanted brought you a lot of joy. Soon, you moved in and were glad to get settled. You had your mortgage, and you may have gotten a larger house because you were able to get an adjustable rate mortgage. Here are some reasons, though, why you may want to think about refinancing that mortgage.

The Future Is Unpredictable

Adjustable rate mortgages allowed many people to get that larger house simply because it started out with lower payments - initially. However, if it has not started already, the day is coming when the fixed rate portion of your mortgage will soon be over. Once that happens, you can expect a jump in your rates because your payments will get a new interest rate. The new interest rate will be changed regularly - limited only by caps set by law.

You still may expect quite a jump - or it may stay steady, or even decrease - depending on the market. The possibility is there that it could become higher than you might be able to pay. This makes it potentially bad. Besides that, when rates do become higher, it may be too late to refinance. Every mortgage, at that time, will probably become unaffordable for most people.

Get A Better Interest Rate

If you watch the market rates, you will know when you have a good opportunity to get a better interest rate. Lower interest rates will mean that it is a good time to refinance your mortgage. It also means that you could lower your monthly payments and get a much more secure fixed rate mortgage.

It is also possible that if you did not have very good credit when you got your current mortgage, that you could see an even greater reduction in your interest rate. A better credit score results in better terms when you refinance, so you will also want to make sure it is in as good as shape as possible.

Reduce The Length For More Savings

You could save much more money if you are able to keep your payments about the same and shorten the time length on your mortgage. If you currently have 20 years left on your existing mortgage, reduce it to 10 or 15 years when you refinance for tremendous savings - if your can. This simple step will enable you to save tens of thousands of dollars over the remaining life of your new mortgage.

Get Cash From Your Equity

If you have lived in your home for a few years, then you will have some equity built up. Using your equity as a source of cash for whatever need or want you have is a good way to get a low interest loan - with time to pay it back. All you need to do is to add the cash you want to the total amount you need.

Keep in mind, though, that you will need to leave 20% of the value of your house untouched. If you get a loan for more than 80% of the value of your house, you will need to pay for private mortgage insurance.

Take enough time when you are trying to refinance your mortgage to get several quotes and compare them carefully. This will help you see which offers are really good. Do not limit yourself to looking just at the interest rate, but also consider the total amount of fees, as well as the overall cost of refinancing. You also want to make sure that there are no penalties for paying it off early.