How To Refinance Your Mortgage
How to Know When the Time is Right to Refinance Your Mortgage in Wisconsin or Colorado
Easy Mortgage Company Can Help You Refinance with NO closing cost, appraisal or title fees!
When you pay off your existing mortgage loan and obtain a new one to replace it, it’s known as refinancing. There can be numerous different reasons you might want to do so such as:
- You want to get a lower interest rate
- You need to lessen the duration of the mortgage
- You would like to switch from a fixed-rate mortgage to an adjustable rate (or vice versa)
- In order to finance a major purchase using some of the home’s equity
- To consolidate debt
Some of these reasons have both pros and cons. In addition, it’s going to cost 3-6% of the principal to do the refinance, because it will require an appraisal, title search, and application fees. Before refinancing, the homeowner needs to figure out just how much will be gained by doing so.
Refinancing to get a Decreased Rate of Interest
Getting a lower interest rate is one of the best reasons to refinance. During the 60’s and 70’s, it used to be that lenders recommended refinancing if you could get a rate at least 2% lower, but today even a 1% decrease is considered enough of an incentive to refinance your home. Some of the reasons a lower interest rate is attractive is because you can:
- Decrease your monthly payments
- Increase the rate of equity in the home
- Save money!
For instance, if you have a $100,000 loan with a 30-year fixed mortgage and 9% interest, your monthly principal and interest payment would be $804.62. The same loan with 6% interest would change the monthly payment to $599.55.
Refinancing to Shorten the Term of the Loan
When interest rates decrease, there is often an opportunity for homeowners to refinance their loans that won’t change the monthly payment much, but will lessen the duration of the loan. Changing the 30-year mortgage mentioned above from 9% to 5.5% will cut the term of the loan from 30 to 15 years with a slight raise in the payment of less than $15 per month.
Refinancing to Move Back and Forth between Adjustable and Fixed-Rate Mortgages
Many people start with Adjustable-rate mortgages (ARMs) just because they offer lower rates. However, during the term of the loan, the adjustments often cause the rates to surpass the rate of a fixed-rate mortgage. If this happens to you, it might be a good idea to consider moving to a fixed-rate mortgage which will not only lower your interest rate, but also prevent rising interest rates in the future.
On the flipside, however, it can also be a good strategy to convert your fixed-rate loan to an ARM, especially if interest rates are falling. If rates keep on falling after you’ve converted, you’ll be able to cash in on the decreasing rates, lower monthly mortgage payments, and avoid needing to refinance each time interest rates drop. This may be a particularly good idea if you’re only planning to stay in your home for a few years. For the short term, you’ll be able to lower both your interest rate and monthly payment without needing to think about the eventual rise of interest rates at some point in the future.
Refinancing in Order to Tap Equity and Consolidate Debt
People often feel justified in taking out a home equity loan when it’s time to make a large purchase, such as to cover extensive remodeling or a child’s college expenses. After all, they think, remodeling will add to the value of the home, and the interest rate is often much better than what can be found through other sources. Besides, home interest is tax deductible. While these reasons and justifications may seem fairly sound, they can actually put the homeowner into debt that it almost impossible to climb out of. Keep in mind that it’s seldom a good idea to increase the term of your mortgage, because the transaction isn’t going to turn out in your favor. After all, spending a dollar in interest to save thirty cents in taxes makes no sense at all.
Another reason homeowners refinance is to consolidate debt. After all, it sounds like a good idea to replace high-interest debts with low-interest mortgage rates. However, refinancing doesn’t guarantee that you’ll automatically become financially savvy. Most people who run up high credit card balances and excessively purchase high-ticket items, like cars, aren’t going to change after they refinance. Refinancing will, instead, give them the credit they need to go even further into debt.
What a transaction such as this will do in the long run is:
- Cost them wasted refinancing fees
- Decrease the equity in their homes
- Increase the number of years they’ll be making interest payments
- Leave them open to even more high-interest debt as they max out more credit cards
In essence, all they’re doing is perpetuating the debt cycle.
Is it a Good Idea to Refinance?
Refinancing can be an excellent tool to help you reduce your monthly mortgage payments, shorten the term of your loan, let you build equity faster, and gain control of your debt when it is used with care. Before considering a refinance, stop and ask yourself these two important questions:
- How much longer are you planning to remain in this house?
- How much money do you stand to save by refinancing?
Is a No Cost Closing Loan Right For You?
At Easy Mortgage Company, we offer $0 closing costs, adding absolutely zero additional cost to your principal. The no closing cost option is right for you if:
- You do not plan on staying in your home for a long period of time
- You are currently unsure about the length of time you will be in your home
- If you don’t want your principal balance to increase.
The closing costs option is the right option if you plan on staying in the loan generally longer than 5 years. This is just a general rule of thumb, but by this time you usually have the closing costs made up and then have 25 more years of savings on a 30 year loan.
Need expert advice on when or how to refinance your home? Wisconsin’s Easy Mortgage’s Loan Consultants are standing by to give you expert advice to make this mortgage process EASY.
No hassle. No pressure.
Unlike many mortgage companies, we have your best interest in mind. We’re here to help you save money and make the right decision that is best for you so you can avoid making costly mistakes that will hurt you in the long run.
Call one of our qualified Loan Consultants today toll free at 877-833-3279 or email us with your mortgage questions today!