Should I Refinance My Home Mortgage Loan
Should I Refinance?
When do you know that refinancing might be in your best interest? Since your home and your mortgage are your largest investments, it is very important to stay on top of appreciation trends, market changes, and other important issues, because unltimately your home can become the most startegic investment that you own. Let’s face it the home is the biggest investment most American’s make. Should you refinance now? Ask yourself the questions below…and then consider
Factors To Consider
Are Rates Lower? Is My Payment Changing? Is My Home Appreciating? Do I Have a 2nd Mortgage? Do I Have Other Debt? Am I Having Trouble Making My Payments? Are Rates Lower Than My Current Rate?
Don’t sell your self short by having tunnel vision when it comes to refinancing. One of the largest misconceptions about refinancing is that there needs to be large swings in interest rates in order to make it worth your while. In reality, interest changes as low as 0.25% can trigger a smart refinance. As a homeowner, it is important for you to be aware of flucuations in the market, and at any time that the prevailing rates seem to be lower than your existing rate, it is time to inquire about refinancing. Notice I said, it is time to inquire. There are many factors that ultimately determine how wise a refinance may be, and believe it or not, the rate is only one of many. Another very important factor is how much longer you plan to remain in the property. If you are planning to sell within the next year or two, then refinancing may not be a smart move for you. However if rates are lower, and there is that possiblity that you might remain after two years, then it doesn’t cost you anything to inquire.
There is no set amount that rates have to come down to make refinancing a good thing. Each individual situation is different, and subject to it’s specific analysis. Sometimes, the solution is to do nothing, but even then we know that the market will continue to change.
Is My Payment Going To Change?
There are only two things that can make your payment change. First, and most common, is that there is an adjustment to the amount of escrows that are being collected to pay for your taxes and insurance when those bills come due. Small changes in those annual bills result in small changes in your monthly payments, however, big changes can become devastating. Let’s assume that two years ago, your taxes were $3500 per year, and this year you get the bill and they have increased 40% (remember your home is going up in value) to $4900 per year. All year when you made a mortgage payment, a prtion of that payment was being deposited to pay this years taxes at $3500, or $292 per month. But when the tax bill comes at $4900, the lender HAS to make that payment on your behalf. What happens next can become truly devastating for some families. The increase in taxes was $1400 per year, or $117 per month, so you would expect the lender to increase the escrow portion of your payment by $117 per month, right? Guess again! The lender will increase your payment by at about $234 per month, or TWICE THE AMOUNT OF THE INCREASE! Why? When the tax bill came it was $4500, and they had been collecting enough funds in escrow for taxes to pay a tax bill of only $3500. So in essence, they have loaned you the $1400 increase in order to pay the bill, and are giving you 12 months to repay them, while simultaneously increasing the amount that they are collecting so that they can now pay $4500 when the bill comes the following year. If your payment is about to increase by even $100 a month, it’s definitely time to review your current situation for refinancing.
The second most common reason for your payment to increase is directly relative to the terms of your current mortgage. Adjustable Rate Mortgages have a predetermined time when the interest rate will adjust, and when the rate adjusts, if it goes up, then so does your payment. On a $200,000 loan amount an increase of only 1% would cause your payment to increase over $125 per month. If you currently have an Interest Only Mortgage, then there will come a time when the Interest Only period will expire, and this will definitely increase your payment. The payment on a $200,000 6% Interest Only Mortgage is $1000 per month, but if the Interest Only period was 5 years and now expires, the mortgage would then convert into a 25 year mortgage (the remaining term of the 30 year mortgage), causing your mayment to increase from $1000 per month to $1288 per month, an increase of $288 per month! Wait, what if your Interest Only Mortgage was also an ARM and it is scheduled to adjust at the same time? Assuming it only went up 1%, then instead of $1000 per month, your payment would jump to $1413 per month. But wait, what if your taxes went up at the same time? Now instead of $1000 per month, your payment will increase by $647 per month, a 64% increase! Now is definitely the time to review your situation.
Is My Homes Value Appreciating?
This may be the most important factor considering what your goals are. It’s really not being a nosy neighbor When you call about a home for sale in your neighborhood. It’s actually a great way to stay up to date on what is happening in your specific market. Or you can find a good Realtor or Loan Officer to help you find out your homes value.