Since I am in the process of
re-financing my mortgage, I thought this would be a good opportunity to write
something about re-financing. Whether or
not re-financing is beneficial is a question many homeowners may have when considering
re-financing. Unfortunately, answering
this question is rather complicated because the answer is not always the same. There are some circumstances where a
homeowner might examine the possibility of re-financing; these circumstances include
drop in interest rates, improvement in a homeowner’s credit score, and changes
in a homeowner’s financial situation.
Although re-financing is not necessarily warranted in these situations,
it is certainly worth investigating.
Drop in Interest Rates
Drops in interest rates often
send homeowners rushing to re-finance.
This is often the case if you bought your home during a thriving Real
Estate market when you financed at a rate that is now above the average. However, the homeowner should carefully
consider the drop in interest rates before making the decision to
re-finance. It is important to note that
homeowners pay closing fees each time they re-finance; these fees include
application fees, origination fees, appraisal fees, and a variety of other
costs that may add up quickly. Because
of these closing fees, homeowners should carefully evaluate their financial
situation to determine whether or not re-financing viable option. Generally speaking, closing fees not exceed
the overall savings and the amount of time the homeowner will need to retain
the property to recoup these costs which should not be longer than the
homeowner plans to retain the property.
Credit Score Improvements
When the homeowner’s credit
scores improve, considering re-financing is warranted. Lenders are in the business of making money
and are more likely to offer favorable rates to those with good credit than to
those with poor credit. As a result
those with poor credit are likely to be offered higher interest rates or
adjustable rate mortgages. Homeowners dealing
with these circumstances may investigate re-financing as their credit improves. The good thing about credit scores is that mistakes
and blemishes are eventually erased from the record; as a result, homeowners
who make an honest effort to repair their credit by making timely payments may
find themselves with improved credit sometime in the future.
Lenders are willing to offer
lower interest rates to those with higher credit scores. This is why homeowners should consider re-financing
when their credit score begins to show improvement. During this process is the homeowner can
determine whether or not re-financing is worthwhile.
Changes In Financial Situations
Homeowners should also consider
re-financing when there is a significant change in their financial situation. These changes may include an increase in
salary as well as the loss of a job, or even a change in careers resulting in a
decrease in pay. In either case,
re-financing may be a viable solution. Homeowners
who are making more money might consider re-financing to pay off their debts
earlier. On the other hand, those who are
unable to fulfill their monthly financial obligations might turn to
re-financing as a way of extending the debt and lowering their monthly
payments. This may result in the
homeowner paying more money in the long run because they are stretching their
debt over a longer period, but it may be necessary in times of need. In these cases a lower monthly payment may be
worth paying more in the long run.
Therefore, in times of lower
interest rates, it may be a good idea for examine the idea of re-financing to
take advantage of the lower interest rates.
It is also a good idea to examine this option when there are changes in
your financial situation, whether it is improved credit scores, increases in
pay, decreases in pay, or any changes in your financial situation. Moreover, it is important to also examine
possible impact as a result of possible re-financing.
