Refinancing

Refinancing a home loan can reduce monthly payments significantly and save thousands in interest over the course of the loan. Evaluating whether this is the right choice for each person can be a complex endeavor. It can be a strong financial move, but it is not for everyone. God teaches us to use our money wisely, so it is important to research thoroughly and pray fervently for His guidance.

As a general rule, looking at other options is worthwhile if rates have fallen 2 points lower than what is currently being paid. However, if there is any plan of selling the house, a 2 point difference might not be worthwhile due to the costs. It typically takes 3 years to recoup the costs of refinancing and then begin saving money on the lower rate. This is a good tool for homeowners who expect to stay in their homes for a few years and want to extricate themselves from a higher rate mortgage. this financial move is also useful for people who have an ARM or adjustable rate mortgage and want to convert a loan whose interest is at a fixed rate for the duration of the loan. Another reason some people use this method is to build up equity in their home more quickly by opting for a shorter rate loan.

There are several costs to expect, most of which can be rolled into the new loan. Fees can vary widely from lender to lender, and range from application and title fees to loan origination fees and points. To compare the costs from one lender to another, ask the lender for a good faith estimate. A good faith estimate requires the lender to clearly itemize the fees you will incur as part of the refinance. Be on the lookout for prepayment penalties. Prepayment penalties charge extra interest if the loan is paid off early, which might happen if the house sells before the mortgage is paid off. Prepayment penalties vary from state to state and are not permitted on some types of loans. Prepayment penalties can be a deterrent to refinancing, so look for lenders that do not include such a penalty in their loans.

This can be a wise financial move for those who want reap savings from a lower-rate loan or for those who wish to use refinancing as a debt consolidation tool or way to fund a large expense such as a child's education. Carefully evaluate the present situation to determine whether this is a good option. If there are any doubts, consult a trusted professional that isn't necessarily looking strictly for a sale.

Add to: File Insurance Business article Teen Photo Images