Why do people actually refinance their mortgages? Is it simply because the rates have dropped? Not necessarily. Before you refinance, there are a number of factor you’ll have to take into consideration even if the rates have fallen.
Today’s mortgage market is tightening, and lenders are stricter when it comes to lending and refinancing. As far as changes in mortgage rates are concerned, there has been a steady fall in the rates since 2009 when the rates were averaging 5.6% for a 30 year mortgage to the present rates of 3.47%.
According to economic news, experts predict that the rates could probably have hit their lowest in 2013; however, there is no certainty to such predictions. To get the exact picture, you could look at some of the Adjustable Rates Mortgage (ARM) indexes available online. Considering this trend, it is wise to make an informed forecast and determine whether the rates can move further down or they will only increase.
If you took your loan a long while ago, no doubt the rates have reduced for you and you could consider refinancing as an option; but, you must calculate your breakeven point, or let your mortgage broker assist you. You can also think of www.directaxis.co.za – debt consolidation.
At the end of the day, your goal should at least be to save on your monthly repayments, but overall, such savings should have an impact. A good example of where it is not advisable to refinance your mortgage is when the interest rates have dropped, but there is a very short duration remaining before you can repay the loan. Also, the closing costs (cost associated with refinance such as negotiation fee, legal fee, valuation fee, brokerage fee, repayment penalty, among others) might eat up any reasonable savings you anticipate.
So, what is normally done is to calculate the break-even point; that is, the point where the savings exceed the cost and determine whether it is really worth the trouble. Other than that, there are other factors that may influence you to seek for refinance such as increase in home equity or the fact that your credit score has improved, and you are seeking lower rates of interest. If you have extra stream of income, you can request for a refinance so as to reduce; also, you can request for refinance if you are having difficulty repaying the loan at the current rate.
They type of mortgage you took, whether it is fixed or adjustable rate mortgage also determines your refinancing decisions. Most borrowers find it profitable to refinance their mortgage from fixed to adjustable rates.
Many banks and lending institutions have different refinance rates. Therefore, if you have decided to refinance, it is critical to compare the rates from different lenders, by also taking into consideration other factors such as negotiation fee and repayment penalty. The best place to begin with is to apply for free quotes from different lenders through a lead generation company and make the comparisons.
One thing you must always remember to make a good use of is your mortgage amortization calculator. If your calculations do not make financial mathematical sense, then it is time to rethink about going for a refinance.