Mortgage Refinancing: How to Improve Your Financial Situation with Your Mortgage

If you are less than happy with your existing mortgage lender, mortgage refinancing could get you a loan with better terms or a lower payment amount. If you used a risky adjustable rate mortgage to purchase your home and are due to have your loan reset, mortgage refinancing could give you much needed financial peace of mind. Here are several tips on how mortgage refinancing can improve your financial outlook.

Mortgage Refinancing: How to Lower Your Payment Amount

The interest rate you qualify for has a significant impact on your monthly payment amount. If your financial situation has improved since purchasing your home, mortgage refinancing could get you a better interest rate and lower monthly payment. Even if you cannot qualify for a better interest rate you can still lower your monthly payment by choosing a mortgage with a longer term length. Many lenders now offer mortgage loans with 40 and 50 year term lengths allowing monthly payments similar to interest only loans. By lowering your monthly payment you will free up money in your budget for other things.

Mortgage Refinancing: Beware Prepayment Penalties

Before mortgage refinancing you need to know whether or not your existing loan has a prepayment penalty. Contact your lender to find out if you have to pay a penalty for mortgage refinancing; if your loan has this penalty try and negotiate with the lender to pay a lesser amount. Mortgage lenders include prepayment penalties in their loan contracts to discourage refinancing the loan. Make sure your new mortgage lender does not include this fee in your loan contract.

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Does Mortgage Refinancing Make Sense In Your Situation?

You may be considering refinancing your mortgage but are unsure if a new mortgage makes sense in your situation. Many financial advisors tell you not to refinance unless the new mortgage interest rate is two percent lower than your existing mortgage; however, the two percent rule of mortgage refinancing is simply rubbish. Here are several tips to help you decide if mortgage refinancing makes sense in your financial situation.

The best way to evaluate if refinancing your mortgage makes sense in your situation is to evaluate the cost and savings of your new mortgage. Rather than trying to find a mortgage rate that is 2% lower, consider how long it will take you to recoup the expenses and realize a savings.

Suppose your closing costs and expenses add up to $2,500 and your mortgage payment will be $75 lower each month. It will take you 34 months; just over two and a half years to recoup the expense and benefit form the savings. Is mortgage refinancing worthwhile? The answer to this question depends on your individual situation and your objective for the loan. There are circumstances where it makes sense to refinance to a mortgage with a higher monthly payment. In these cases, the cost/savings benefits are not clearly defined.

Many homeowners choose to refinance their mortgages with a 15 year term; this results in a higher monthly payment but builds ownership in your home at a much faster rate. Instead of having a lower monthly payment you will save money in the long term by paying less to your lender in finance charges. Another common reason for refinancing to a higher monthly payment is to receive cash back at closing. Mortgage refinancing with cash back is frequently a more affordable option than a second mortgage or home equity line of credit. You can learn more about your mortgage options, including costly mistakes to avoid with a free mortgage tutorial

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