How To Make Refinancing Work For You
Refinancing your mortgage -- essentially turning it into a new mortgage so that you can have a lower rate, a new term, or a bunch of extra cash -- can be good in many cases. But it can turn sour if you aren't careful. If you were lucky enough to get an initial mortgage, you want to pay that off rather than increasing it and making the payments unbearable. In order to avoid that problem and successfully pay your new mortgage, ensure you do the following:
Keep the Same Term
Do not extend the term of the mortgage. When you refinance, you're essentially asking for a new mortgage loan for the remaining amount of the old one. This "new" mortgage carries its own rate, term, and other features. You can have the "new" mortgage be a shorter term, a longer term, or the same remaining amount of your old term. If you can, keep the same term, so that if you have 10 years left on your old mortgage, your refinanced version will also have 10 years. Assuming the rate is lower, that will help lower your overall payments. If you make the term longer, you could end up paying more interest over the life of the loan, even if your monthly payments are lower.
Do It for the Right Reasons
Be very careful about why you want the refinancing. If you're attempting to pay off debt, that can be a tricky move because now, if you can't make payments, your house is on the line. However, if you're trying to get extra cash so that you can make necessary repairs to your house, then that could be a good reason.
Avoid Rushed Decisions
Don't rush into refinancing. Even if the rates look like they are only temporarily low and will shoot back up soon, or if you're afraid of your current adjustable-rate mortgage, take a look at the terms, the money you'd pay each month, and the money you'd pay overall. Sometimes not refinancing is better, and you don't want to rush into refinancing if you'd be better off not doing anything.
Check the Fees
Refinancing fees can be low or high; always check them before beginning the process. If the rate drop is small, the savings from that could be eaten up by the fees. On the other hand, if the fees are low, and the new rate is so low that you'd still save money, go for it -- that can be a good refinancing situation.
A mortgage lender like MainSource Bank can help you figure out if refinancing is the right move, or if you should stick with your current mortgage. Remember, take this decision slowly. When done for the right reasons and in the right way, though, refinancing can be very beneficial.