The need to refinance a home mortgage arises when you want to decrease your monthly payments by lowering the rate of interest on your mortgage. Before you refinance a home loan, you should understand that there are some factors to consider before you refinance a mortgage loan.
You should calculate how much money will be really saved, check the closing costs, and any fees associated with refinancing. Other factors to be kept in mind include the "seasoning period" which refers to the time period which commits you to your existing loan before you reconsider other financing options. Sometimes there are early payoff penalties, which is basically a fee that needs to be paid in order to terminate the loan. Sometimes this fee extends to when you refinance a mortgage. Therefore, you should study your mortgage contract to determine if there is a clause that applies to your situation
Another important thing is to calculate the actual "total" cost of refinancing your loan. This includes any closeout costs or additional fees that you encounter when refinancing.
Refinancing can also be used to secure additional funds. By applying for an amount that exceeds your mortgage balance, you can clear out your old mortgage balance and use the additional funds for other purposes. Allocating it for retirement or saving for the kids college fund are prime examples.
Refinancing involves calculating the break-even point. It is the point where you'll stop paying more than what you are saving, and recover the money it cost you to refinance the loan, including the closing fee and other costs.
It is very easy to calculate the break even point. You just have to see how much money you are saving every month and then compare it with the costs. Once you know your break even point then you can apply for refinancing. Calculating your break even time becomes even more prudent when you plan to stay in the home for a short period of time. As soon as you recover all the costs from refinancing, you can start refinancing again.
Refinancing a home mortgage will definitely benefit you in the long run, by reducing interest and lowering your monthly payments, helping you to save more. Do the calculations to determine the optimum time for refinancing and take advantage of the money you can save. You can improve your qualify of life by freeing up money that would otherwise be committed to the monthly mortgage repayment.