People love to consider a mortgage refinance as a means to lower payments on their home loans but it is not as simple a decision as it is thought to be. In fact you are likely to rue any decision unless you think the issues through very carefully. Basically, refinance is considered as helpful in:
- Lowering the monthly repayment installment by extending the period of the loan.
- Increasing the monthly repayment installment by shortening the period of the loan; this is done to close the loan quickly.
- Move from a higher to a lower rate of interest or from a variable rate to a fixed rate.
Let’s examine the issues in a bit more detail.
When you calculate your savings are you considering the costs?
When you opt to reduce the monthly payments it should not be forgotten that you are extending the period of the loan by many years and this actually adds to the cost of the mortgage as more interest piles up on the loan outstanding. The lowered installment may give you financial relief in the short term but you will pay a steeper price in the long term. By lengthening the mortgage duration the repayment might extend beyond retirement when a reduced income might create difficulties in loan repayment.
You could benefit if interest rates decline in a big way, but in this area a lender would be less inclined to give you the benefit of an interest reduction if he perceives that your credit rating is not high.
You also need to factor in the cost of putting through the refinance
If refinance was so attractive borrowers would be hopping on to the bandwagon every time interest rates drop appreciably, but this can’t be done as a matter of routine purely because refinance costs money to put through. Mortgage appraisal and application fees, property title verification, property valuation expenses, title insurance premiums and mortgage closing expenses add up to a hefty amount that can’t be shelled out every day. Before you decide on refinancing your mortgage add the refinance costs to the long term expenses and see if it still works out in your favor.
Pull the trigger only if you sight long term benefits
Obviously, refinancing is easier said than done and it is not practical enduring higher costs for smaller savings. Also, it is dangerous to commit loan repayments for longer periods especially when retirement looms on the horizon. Keep an eagle eye on the size of the loan, the duration you need to repay the loan and the instability of interest rates, and opt for refinance only if rates fall substantially by 1% to 2%.
If you really want to make a difference to your existing mortgage try prepaying the loan in small accelerated installments. Even $1000 to $1,500 prepaid annually can peel away years from your repayment schedule. Also, if your income situation improves in the short term you can always ask the lender to allow an accelerated repayment so you can finish the dues faster. Most lenders would readily oblige you.
If you are considering a good refinance option use a cash loan for title to make upfront payments
The loan for vehicle title is extremely useful when you are financially tight and you desperately need funds. The car equity loan will assure you 60% of the value of your vehicle, and the car title is the only collateral required. The auto equity loan will not burden you with interest beyond 25% APR, and this is a favorable issue when you consider that a payday loan charges you anything in excess of 400% APR for smaller loans. The auto collateral loan is extremely simple to apply (you can do everything online) and disbursements are quick. These pawn car title loans can be repaid in flexible monthly installments matched to your income. Using these loans you can pay fees upfront and clinch the mortgage refinance deal that will save you a lot of money down the road.