Does it Make Sense To Refinance?

Here are reasons why it might make sense to refinance.

1. Lower your rate - Typically, the most common reason that homeowners refinance their mortgage is to secure a lower interest rate. Interest rate and loan amount determines the total cost that a borrower will pay. The lower the interest rate, the less the overall cost will be. Interest is calculated on a daily basis and usually paid back to the lender on a monthly basis.

2. Change from adjustable to Fixed rate - It's important to consider what mortgage rates are doing. Are mortgage rates rising or falling? If you have an adjustable rate mortgage (ARM), it may adjust to a rate that's higher than a fixed-rate mortgage. Now might be a good time to consider refinancing to a fixed-rate loan.

However, you must also consider the amount of time you plan on being in your home. If you're only going to be in your home for a few more years, it may make sense not to refinance out of your ARM. If you're going to be in your home longer than three years, it might be a smart move to refinance to a fixed-rate mortgage.

3. Change from Fixed rate to adjustable rate - You need to consider how long you plan on being in your home. The average time Americans stay in their home is seven years so it may not make sense to pay a higher interest rate for a 30-year fixed-rate mortgage when you're not going to be in the home that long. Doing so may be costing you money. Consider refinancing to an ARM instead - you'll get a lower rate and lower your monthly mortgage payment.

4. Lower your monthly payment - There are a few different ways you can lower your monthly mortgage payment.

First, you can simply refinance to a lower interest rate. A lower rate generally means a lower monthly payment.

Second, you can change the term of your mortgage. For instance, if you have a 15-year mortgage, you can lengthen the term to 30 years. Since the balance of your mortgage is spread out over a longer period of time, your payment is lower. However,

The third way to lower your payment is to refinance to an interest-only loan. Basically, with an interest-only loan, the minimum amount you are required to pay is the amount of interest for a certain period of time, though you can pay as much principal as you like. But you get the flexibility to pay less if you need or want to divert your money elsewhere, such as contributing to your 401k or saving for your child's college tuition.

Use our refinance calculator to see how you could lower your monthly mortgage payment. Or, if you're already in an FHA loan, find out if you could benefit from the new FHA Streamline refinance loan by answering a few questions online now.

5. Get cash - The equity you have in your home can act like a savings account that you could access through a home equity loan or a cash-out refinance. This is usually done when you want to finance an important home improvement, pay for college or pay off high-interest credit card debt. Whatever your reason, this may be the right option for you.

6. Change the term of your current loan/build equity faster - if you have a 30-year mortgage and one of your financial goals is long-term savings, you may want to consider shortening your term to 20 or even 15 years. Your payment will be higher, but you will pay much less in interest over the life of the loan, saving you thousands of dollars in the long run.

7. Take advantage of an improved credit rating - The last time you qualified for a mortgage, your credit score may not have been as good as it is now. When your credit score increases, you may qualify for lower rates and better loan programs.

8. Eliminate mortgage insurance(PMI) - Getting new terms in your mortgage can also rid you of Private mortgage insurance or PMI. Mortgage refinancing can reduce your overall monthly payments by getting a term with no PMI. It also raises your credibility to the lenders, assuring them that you have the intent to pay.

9. Consolidate Debt - Refinancing your home can help you pay off your other debts. You can increase your loan amount by the amount that you need and you will receive the cash you need to pay off other creditors. You have shifted the debt to the lender but at a lower interest rate and the interest you pay can be tax deductible.

10. Take advantage of new mortgage products - Lenders are more desperate than ever for customers, while the government is doing everything it can to stimulate the housing market. Mortgage products that weren't available to some homeowners five years ago may be available now. If you're on a variable interest, interest only or negative amortization loan, you may be eligible for a fixed interest rate loan even if you have zero equity on your property.