3 Important things that you need to consider before refinancing
If you are facing problems in paying off your loan, then you must be looking for favorable terms and rates on your mortgage loan. You can enjoy the benefits of favorable terms and rates through mortgage refinancing. When to refinance rule of thumb says that refinancing makes sense in case you are able to lower down the mortgage rate by 2%. Anyways, before making the decision to refinance, you must take into consideration various factors such as your overall financial situation, your existing mortgage and the market conditions. Here we briefly discuss about few important things that you need to look into before applying for mortgage refinancing.
Rate of interest
One smart way to determine whether or not it is the right time to opt for refinancing is to find out the gap between your existing mortgage rate and the current home mortgage interest rate. According to many mortgage experts, if the current mortgage rate is 2% lower than the rate that you are actually paying, then it makes sense to opt for mortgage refinancing. This 2% difference will help you save some money. This will in turn help you repay the loan more easily.
Budgetary considerations
Your budgetary considerations are important to make a decision regarding mortgage refinancing. If the mortgage payments that you are making are putting strain on your budget, then you can think of refinancing. Through refinancing, you can reduce your monthly payment. As a general rule, your monthly mortgage payment amount should not be more than 35% of your take home pay.
Type of the mortgage loan
Another important thing that determines whether or not you should opt for mortgage refinancing is the type of the mortgage loan. Say, you have taken out an adjustable rate mortgage (ARM) and the rate of interest associated with that loan is quite high. In that case, you may be interested to transform that loan into a fixed rate mortgage (FRM). An FRM is a comparatively safe option as the rate of interest on an FRM remains fixed throughout the term of the loan.
The above discussion will surely give you an idea about the right time to refinance. Through refinancing, you will be able to build up equity in a house and you will be able to own the house much early.
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