4 Reasons to Get Your Mortgage Refinanced

Summary: Planning to get your mortgage refinanced? Make sure it helps you. Understand the situations that make it ideal to get your mortgage refinanced.

One question that haunts almost every homeowner is when to refinance the mortgage. Not in all situations does a refinance seem suitable. But if you take the right decision at the right time you can save up to $3000 a year by getting your mortgage refinanced.

Many mortgage lenders might get in touch with you and offer to refinance your mortgage. Nevertheless, unless you know you are going to benefit from such refinancing, it is better not to go ahead with any of them. Here are a few situations when it would seem ideal to get your mortgage refinanced:

When the Interest Rates Go Down

Most homeowners think of getting their mortgages refinanced when the interest rates are low. However, it is important to evaluate whether these low rates justify refinancing, before taking any decision. Here are a few things to consider:

• Base your decision on the current interest rate; not on a prediction of future rates.

• Consider the entire term of the mortgage while calculating how much you will save. Getting a $300,000 20-year term mortgage refinanced into a $300,000 30-year term mortgage might help reduce your monthly payment; but you will be paying more on interest, over the extra 10 years that get added to your term.

• Factor in the tax consequences of such refinancing. With a lowered interest rate you might have to claim a lower amount as your tax deduction.

• Calculate the total cost of refinancing your mortgage. Check with a couple of mortgage lenders who come to you through mortgage live leads, and compare their costs before making your decision. Make it a point to consider closing costs, prepayment penalties, private mortgage insurance if any, while doing your breakeven analysis.

• Find out how long it might take you to reach the breakeven point. Consider refinancing only if you plan to stay in the home longer than this period of time. If not it won’t make much of sense even if the interest rates have gone down.

It generally makes sense to refinance your mortgage if the interest rate drops by more than 2 percentage points.

When your credit score has gone up

You can benefit from refinancing your mortgage even if the interest rates haven’t really gone down – the condition is that your credit score should have improved. If you have a high credit score you can get your mortgage refinanced at a much lower rate of interest than what is currently prevailing in the market. Get another source of income or a better paying job. Reduce your expenses. Try and achieve a credit score of 760 or higher than that.

When your financial situation has deteriorated

If you are no longer able to afford your current monthly payments, you may want to refinance your mortgage in order to lower your payments. You can get a better interest rate if you have accumulated a lot of equity on  your home. If not, you can always extend the term of your mortgage to reduce your monthly payments.

Let’s say you have made monthly payments for ten years on your $300,000 30-year fixed rate mortgage at the rate of 4%. So the amount that falls due at the end of the 10 year period will be $235,000. Your monthly payments would then amount to $1,430. Now if you decide to refinance this outstanding balance of $235,000 by going for a 30-year fixed rate mortgage at 4% interest rate, you can get your mortgage payments reduced to $1,120. You will have to keep making payments for ten more years at the same interest rate. However, you will end up paying a lot more on interest due to the addition of this decade to your mortgage term.

When you need to convert your ARM into a fixed rate mortgage

Although an ARM might start at an interest rate that is lower than that of a fixed rate mortgage, the payments can get unaffordable over time. This depends on the current market rates and also on the frequency at which the interest rate changes after the end of the introductory period. If you feel that the interest rates are going to be on the rise for quite some time now, it is better you get your ARM (Adjustable Rate Mortgage) converted into a Fixed Rate mortgage. Consider the historical trends before making your decision. If you have plans of selling your home within a short period of time, such a refinance may not make much of sense, even if it reduces your monthly payments.

Apart from the above situations, you can also get your mortgage refinanced if you want to get debt-free within a shorter span of time. For instance, you can get your $300,000 30-year term fixed rate mortgage to a $300,000, 20-year term fixed rate mortgage at the same interest rate. However, your monthly payments would be higher than what they were before. Despite this you will still save money on interest over the term of your mortgage.

If you have made your decision to get your mortgage refinanced from one of the lenders who come to you through mortgage live transfer leads, one best thing to do would be to consider cash-out refinancing. Not only will you be able to reap the benefits of refinancing you will also get some extra cash that you could use to pay off your debts or make some home repairs that might be long overdue.