Make Mortgage Refinancing Work For You
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by: marciafreeman
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Mortgage refinancing can give you some financial breating room if you are looking to lower your monthly expenses. Homeowners refinance for a variety of reasons: to lock in a lower fixed rate on an adjustable loan just prior to an interest rate reset, to tap into home equity to finance home improvements or a consumer loan payoff (a good income tax strategy) or to consolidate two mortgages into a single loan.
Mortgage refinancing makes excellent financial sense if you intend to remain in your home for a long time. It takes close to two years to recover the closing costs associated with mortgage refinancing, so your money will not be well spent if you decide to sell your home within that time. Your actual savings do not begin until the aggregate amount of your monthly savings equals the amount of your closing costs.
A mortgage refinancing loan transaction follows the same progression as did the loan you took out to purchase your home. You will be responsible for loan application fees, an update and review of the title to your home, the title insurance premium, home appraisal and document preparation fees, attorney fees, and the mortgage tax, recording and filing fees imposed by your county clerk, not to mention attorneys fees. Your lender will hire its own attorney for the transaction even if you do not, and it will pass the fees on to you. All these costs can either be paid up front or added onto the amount of your mortgage. Whichever option you choose, your true savings will not begin until you have paid yourself back the amount of your closing costs.
Consider, too, whether you want mortgage refinancing to work to lower your monthly payment by reducing interest or to raise your monthly payment to pay principal down quicker. The first option brings immediate results in the form of monthly savings but will end up costing you more in interest over the life of the loan; the second pays your loan off sooner and costs less in overall interest. It all depends on your long term financial strategy.
Taking a lesson from the housing crisis of the late 2000s, it would be to your great advantage to read the small print before signing on the dotted line. Unscrupulous lenders seduced homeowners into taking on more debt than they could afford. Do not allow yourself to fall prey to the same tactics.
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