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American's faced great financial crisis. As a nation, we struggle
with debt, and it keeps us from achieving a better life. Debt
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ISSUES
Refinancing
Refinancing is a good financial move if the current interest
rate on your mortgage is at least 2 percentage points higher than
the prevailing market rate. This figure is considered a safe margin
when balancing the costs of refinancing a mortgage against the
savings.
There are other considerations too, such as how long you plan
to stay in the house. Most sources say that it takes at least
three years to fully realize the savings from a lower interest
rate, given the costs of the refinancing.
Refinancing can be a good idea if:
• You need to get out of a high interest rate loan or
want to take advantage of lower rates being offered. But you
should remain in the house long enough to make the additional
fees worthwhile.
• You have an adjustable-rate mortgage (ARM) and want
a fixed-rate loan to have the certainty of knowing exactly what
the mortgage payment will be for the life of the loan.
• You want to convert to an ARM with a lower interest
rate or more protective features (such as a better rate and
payment caps) than the ARM they currently have.
• You want to build up equity more quickly by converting
to a loan with a shorter term.
• You want to draw on the equity built up in your home
to get cash a cash advance.
If you decide that refinancing is not worth the costs, ask your
lender whether you may be able to obtain all or some of the new
terms you want by agreeing to a conversion of your existing loan
instead of a refinancing.
Should You Refinance Your ARM? In deciding whether
to refinance an ARM you should consider these questions:
• Is the next interest rate adjustment on your existing
loan likely to increase your monthly payments substantially?
Will the new interest rate be two or three percentage points
higher than the prevailing rates being offered for either fixed-rate
loans or other ARMs?
• If the current mortgage sets a cap on your monthly payments,
are those payments large enough to pay off your loan by the
end of the original term? Will refinancing to a new ARM or a
fixed-rate loan enable you to pay your loan in full by the end
of the term?
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