Mortgage refinancing is popular but is it best for you? Take a good look at the current market and some of the products available to you before you decide. It is not uncommon for some people to rework their mortgage every 2 years or less. For the homeowner with good credit looking at the lower than usual mortgage rates, and the high appreciation of real property, this has worked well for them.
Refinancing can also help you when your mortgage loan is reaching a reassessment point where the payments, interest or terms will be or can be changing. Hybrid loans – a fixed rate converting into either a balloon payment (the balance due) or an adjustable rate at the end of 5-7 years – create a need to evaluate your financial situation, and therefore the appropriateness of your mortgage.
The adjustable rate mortgage, hybrid mortgage, and second mortgage holder is starting to consider the value of the fixed rate loan which can be a 20 year fixed rate, 30 year fixed rate or even 40 year fixed rate product. These programs can provide a lower monthly payment which will be fixed for the life of that loan unlike the ARM which depends on market factors to determine the interest paid. That variable or adjustable interest rate looks less appealing when the Federal interest rate is on the rise as it has been recently.
The housing market has seen unprecedented appreciation for the past several years. Although some markets such as those on both coasts are not as volatile as they were homes are still expected to continue to increase in value. A considerable advantage to refinancing is the ability to cash out that equity and either pay off high interest credit card debt, or outstanding loans such as a second mortgage or even a car loan. Another advantage is that interest on a home mortgage unlike other loan or credit card debt can be a tax deduction. So the more you pay in mortgage interest, the more you can deduct from your taxes. Depending upon your tax liability, this may be a very nice boost.
That appreciation or increase in home value can be put back into the home to additionally increase its value. Using that cash from a refinance to fund your home improvement is giving you another return on the reinvestment of that profit. An updated home with modern touches and convenience is much more valuable on the market. And some improvements add more than their cost to the increased cost of the home. A new bath room or updated kitchen can be a joy to use and a jump in your equity.
A concern for the bad credit homeowner is that they may not be able to refinance their adjustable rate mortgage, or their loan which has a big balloon payment coming due. They were creative in getting into a home, but now they need to refinance and they have a bad credit history to overcome. According to Fed Chairman Ben Bernanke 25% of all mortgages are ARMs and 10% of those will be subject to a readjustment of interest rate this year. He said that the low income borrower or the impaired credit borrower is a big concern. According to an LA Times article, California has seen the number of default notices in the first quarter of this year rise to a higher level than experienced in the last 2 years.
So what do you do? Walking through the many variables can be mind numbing. How do you know what information you need when you don’t know what the choices are? How can you deal with a less than perfect credit history when you need to avoid a large payment increase? That’s when you need to rely on a good professional to help you pull all the pieces together. Don’t be afraid to get help on something this complex. Since there are so many changes in both the market and the options offered, only someone really versed in this topic can give you the best options for you.
Carolyn is a writer from La Jolla. You can read more of her refinance loan articles for Home Equity Loans
and get more information about refinancing and second mortgages.
To learn more about mortgage options, please check out the rates and guidelines for Mortgage Refinance. Don't forget to check out the updated mortgage refinancing options at the Mortgage Loan Outlet online.
