Refinancing Home Loans

Many real estate experts would say that refinancing home loans may just provide tens of thousands of American homeowners a way out of foreclosure and a bad credit standing. But is refinancing really a good idea?

When a loan—a home loan, a personal loan or the likes—is refinanced, it means that you are getting a new loan in order to pay off the old loan. Refinancing home loans is seen as a move usually taken by homeowners not just to stay away from foreclosures but to take advantage of low interest rates as well. It has long been touted as a way to reduce your monthly interest payments by a few hundred dollars.

Without a doubt refinancing home loans can work to your advantage if you are in a tight budget and determined to keep your home. However you have to make sure that your savings on monthly payments will break even with the costs that refinancing home loans can entail. But the question remains, are you really saving up in the long run?

To check your savings, make sure that you are able to consider all the costs that refinancing home loans can entail. Add them all up and see if your monthly savings are all worth it. Let’s say that your refinancing fees reach a total of $3000. While you are indeed getting $150 in savings every month in amortizations if you compare this to your previous loan, this also means that it will take 20 months before your savings actually make the $3000 mark and cover the costs of refinancing. This is all worthwhile if you are sure to stay in your home much longer than 20 months.

Another possible disadvantage of refinancing loans is the fact that most refinanced loans result to longer periods of amortizations. For example if your original loan should be payable in 20 years, your new loan may mean that you will have to make payments for 10 more years to make a total of 30 years. Or, even if you do retain the old terms, this discounts the fact that you have already started to make payments on your home prior to refinancing. This is usually disregarded. Try to consult your finance officer or mortgage agent whether or not you do qualify for a shorter loan term while reducing the amount of your monthly amortizations as well. This can be done easily especially if your new loan is pegged at an interest rate that is much lower than the previous one.

Refinancing is, without a doubt a big step. It has its advantages as well as its disadvantages. It works in almost the same way as credit card balance transfers. It could result to some form of convenience in one way or another but it has its costs. Find out if the costs outweigh the gains. It can work differently from state to state and from one person to another and different loans have different terms. If refinancing works for you, then by all means, go for it!

Speak Your Mind