Should you choose to refinance?
by
Brad Slade
Refinancing
has become a valid option for many individuals with
high interest rates on their mortgage.
Refinancing is essentially a replacement loan, with a
different lender and (hopefully) a lower interest
rate.
So why would
you choose to refinance?
- You may be
able to take advantage of lower interest
rates.
- You may
also be able to extend the repayment period
of your mortgage. While you will end up
paying more in interest charges for this,
this will reduce your monthly outgoings.
- You may be
able to switch from a variable rate to a
fixed rate mortgage, giving you greater
security in the future from potential rate
increases.
- You may
also be able to increase the amount of your
mortgage, to pay off other, higher interest
rate liabilities such as credit card debt,
cell phone debt and personal loan debt. This
will enable you to save money on interest
rate charges
Why would
you avoid refinance?
If you decide
to borrow more than your existing mortgage, you need
to be wary of your budget. If you default on your
payments you run the risk of losing your house.
If you do not
calculate the costs involved with refinancing
correctly, you could end up paying more in interest
charges.
Thoroughly
review the contract of your existing loan, an early
pay out could involve a penalty that would negate the
benefits of refinancing.
What will it
cost me?
Refinancing
does carry some costs that you need to be made aware.
- Valuation
Fee – This is the fee for a professional
appraisal of the value of your house.
- Credit
Report – An assessment of your credit
health
- Escrow
– Fee for money transferred by a third
party.
- Lender
Fees – Any other fees that are incurred
by using a particular lender
Am I eligible?
Applying for
mortgage refinance is just like applying for another
loan. There is a set criteria for acceptance. Every
missed mortgage payment will count against you in the
application, either resulting in a greater interest
rate or a refused application.
Should I choose
refinancing?
You will need
to assess your current mortgage and the changeover
costs and savings to ascertain whether it will be of
benefit to you. There are specific refinancing
calculators that can help you determine the net gain.
The best one that I have found is here http://www.calcbuilder.com/cgi-bin/calcs/HOM12.cgi/
As a rule of
thumb many lenders advocate that a 1% gap between
your current interest rate and a refinance rate makes
refinance a worthwhile option. Always make sure to
speak to a financial professional before deciding to
refinance your mortgage.
____________________________________
About The
Author
Brad Slade
More information on mortgage refinance available at http://members.optusnet.com.au/~mortgagearticles/
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