Refinancing a home mortgage can provide you with an incredible range of benefits. These include everything from reducing your mortgage term and lowering your payments to helping you more effectively build equity or pulling equity out to use for beneficial purposes.
One common question that many homeowners ask is how often a mortgage
should be refinanced.
While there are benefits associated with mortgage
refinancing, there are also some points to consider before you rush into
Think About Refinancing Costs
First, remember that each mortgage application will come with
refinancing costs. These costs can equate to thousands of dollars in
some cases, and they include title fees, lender fees, appraisal fees and
more. While these costs can typically be rolled into your home mortgage
so that you pay very little money out of pocket, these costs will
increase the amount of debt that is tied to your home. When you
refinance too often, you are negating the effects of principal reduction
from your mortgage payments.
Consider the Impact On Home Equity
Some who refinance will choose a straight rate and term refinance,
and they will not pull equity out of their home. Others, however, have
the desire to tap into their home equity to pay off other debts, to fix
up the house, to take a vacation or for other purposes. When you tap
into your home equity, you may be having a negative impact on your
financial situation, depending on how you use the funds.
Pay Attention To Your Final Loan Payoff Date
Before you make a decision to refinance your home mortgage, you also
should focus on your loan payoff date. Many have the goal in mind of
paying off their home mortgage before they retire, and this is
especially true if you plan to live in the home after retirement. On the
other hand, you may have plans to sell the home and downsize before
retiring. Your refinance will adjust your loan payoff date, so this is
an important factor to weigh into your decision making process.
You may know people who refinance every year, and you may know others
who have owned their home for a decade or longer without ever having
refinanced. Each homeowner has a unique financial situation.
speak with a mortgage professional to learn more about the specific
benefits associated with a refinance loan, and you may also keep these
points in mind to assist with your final decision.
Monday, April 20, 2015
Tuesday, April 7, 2015
While there are many things that you could do with your windfall, you may be wondering if paying down your mortgage balance is a wise idea. Before you make your decision about how to spend your money, consider what impact your lump sum payment will have on your mortgage.
Reduction in Principal Balance
The most obvious impact a lump sum payment will have on your mortgage is an immediate reduction in your outstanding principal balance. Your regular monthly payments will be applied to both interest and principal, but your lump sum payment will be entirely applied to principal. Therefore, you can expect to see a rather sizable reduction in the outstanding balance, and this will have a direct and positive impact on your home equity.
More Effective Loan Payments
Your required monthly mortgage payments will not be lowered when you make a lump sum payment on your mortgage, and you will still be required to pay the same amount to your lender going forward. However, your interest charges for each month will be adjusted. Your interest will be calculated based on the current loan balance each month. A reduction in outstanding balance lowers the interest charges. This essentially makes your future payments more effective at debt reduction and reduces the amount of interest you will pay over the life of your loan.
A Change to the Final Loan Payment Date
Because each of your loan payments going forward will be more heavily weighted on principal reduction than on interest charges, the fact is that your final loan payment date can be accelerated. Depending on the amount of the lump sum payment that you make toward your mortgage, this may be an acceleration of a single month, several months or even several years in some cases.
Making a lump sum payment on your mortgage can have many positive effects for you. However, this is not the only option available when deciding how to spend or invest your windfall. Compare these benefits against the benefits of other options available to determine your best course of action. You may also speak with a mortgage professional for personal guidance and assistance.