When To Refinance Rule of Thumb
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When To Refinance Rule of Thumb
The rule of thumb from financial experts, is that you should not refinance your house unless the market rates are approximately two percent below your original mortgage lock in rate. But, there are many who take advantage of one and a half or even one and a quarter percent differences in the refinancing rate. It may be worth it if the principal of your loan is high, relative to the costs of refinancing.
Let consider some of the scenarios (rule of thumb) in which it's wise to refinance your house:
Your current mortgage loan rate is high in relation to market rates.
If you are currently holding a mortgage loan which has an interest rate significantly higher than the rates offered in the market. After calculating all the refinance costs and you see a 'Savings' in loan repayment, then refinancing your house would be your wise decision.
Refinance from adjustable rate mortgage to a fixed mortgage.
You currently hold an adjustable rate mortgage and you have recently discovered that your long term income prospects aren't looking as rosy as they once were. If the mortgage interest rate has very high chance of increasing in near future. You do not want to your financial future to be affected with these unforeseen changes which may causes a spike increase in your loan repayment. Therefore, you can refinance to a fixed mortgage loan so that you can budget more effectively on your reduced income stream.
To shorten your mortgage loan term.
Your financial situation is getting better and you may want to build equity as fast as possible in your house so that you can fully own it with full loan settlement. Hence, if you refinance to a shorter mortgage loan term, you can create this equity faster.
You should consider carefully your financial ability to take on higher monthly payments. Consult your financial planner to see how these increased monthly costs may impact your investment portfolio and general quality of living.
Refinance to avoid spike payment due to balloon mortgage.
If you agreed to a balloon mortgage loan package when you bought your house, you know that you need to pay for large payment at the time of maturity. The time is coming close but you forecast that your financial situation may not support it when the time come; thus, you may want to refinance your house before the large payments come due. By creating this time cushion, you give yourself a window to generate income and asset streams in anticipation of your upcoming refinanced mortgage payments.
Refinance to finance other big ticket purchases.
You can refinance to draw upon the earned equity in your home to finance certain big ticket purchases. Remember that the duration of time you expect to stay in your house will influence your refinancing calculations.
There are many mortgage tools found on the internet and you can use them to do your refinancing calculation before making any decision to refinance your house. Get more information from lenders on their refinance packages and make a summary on all the potential costs involved before making a decision. PR