You may be having a hard time deciding if it’s the right thing to do. Indeed mortgage refinancing is something that you should consider. It may lower your monthly loan payment but your existing mortgage will be extended.
In addition, you need to pay for certain refinancing costs. These fees can be added to the principal loan or will be included in your monthly interests. However, there are factors that will help you decide if refinancing is something that you need to do.
Consider the terms carefully
See to it that you only refinance because you are eligible for a much lower interest rate. Logically, you also need to check out the terms and interests rates before signing any documents. Be sure that you are paying the rates quoted to you.
In the event that there are changes in terms of the monthly payment and interest rates, make sure that you are signing up for a good deal on the mortgage. Furthermore, you can also check several different banks to see what they also have to offer.
Think about the extended loan time
If anything, only refinance your mortgage to shorten the time of your loan. The way it works is you need to choose a shorter loan term. You may end up paying more on a monthly basis, but you won’t have a 30-year loan term which is usually the case.
Remember the longer the loan term is, the more you are paying for the interest. If you have the option, try to refinance your existing loan to a ten or fifteen-year mortgage.
Consider the value of your home
The more you refinance your property, the more you lower the equity or value of your home. Most individuals who refinance their homes are with the reason to ‘increase’ the value of their properties. Example, they extend their loans because they use the money for home renovations.
Some individuals are also using the money to pay off credit cards or finance a wedding and more. This is actually a very risky step. Just imagine what will happen if you are no longer able to make your mortgage payments.
Choose a mortgage term that is beneficial to you
It was mentioned earlier that, ideally, you need to check out different banks to see what their interest rates are. In addition, you need to check out several factors. These factors include the terms and conditions especially with how long your property will be foreclosed in the event of non-payment.
You should also consider the penalties in instances where you may make a late payment. This is because some banks, if you are late on your payment, may charge you with a late fee or there may be an increase in your interest rate. I’m sure this is not what you had in mind originally.
Lastly, if you don’t owe the bank more than eighty percent of the value of your home, be sure that your mortgage is not added with additional insurance option or PMI. Private mortgage insurance is a type of insurance added by the bank to protect them, in the event you don’t have a 20% downpayment.
With all of these in mind, make sure that you read the fine print of your contract. This is to ensure that you are aware of what’s happening and that you will not end up paying more for an extended period of time.