Posts Tagged ‘benefits of refinancing’
Refinancing Doesn’t Always Mean Fast Cash
Right now lots of folks are considering refinancing because of these difficult financial times.
There are many of re-financing products so always do your research before you decide to make a decision. This site is here to help
The debate over refinancing
Although advertisers talk about refinancing, it isnt always a sure-fire way to find fast cash. Anyone who is thinking of refinancing needs to think about the pros and cons to the move. Chronic refinancers that always capitalize on lower interest rates don’t always profit over the long term. There are a lot of closing costs and fees that will add up and savings will suffer.
The reasons for refinancing
The first thing a homeowner should figure out is what their goal is for the potential refinance. People must be aware that refinancing only reorganizes debt. It normally is at a lower rate of interest, but other variables change the equation. Variables can chip away at savings. Reducing monthly payments is the typical reason behind refinancing, and debt consolidation is the second. According to Holden Lewis, an economist with Bankrate.com, Consumers need to talk to a professional to do the numbers and find out if the goal really is worth it. Discharging debt is great, but if the rate drastically clips income, it might not be a wise choice.
When you should refinance
After honing on the reason a consumer wants to refinance, the next thing to decide on is when. The Bankrate 2008 Closing Cost Survey indicated the national average on closing costs for a $ 200,000 loan was $ 3,118. That is in addition to taxes, insurance and prepaid items like interest and association dues. A lower interest rate extends the length of the loan, and can cost more in interest, as one must be aware. For instance, a mortgage with 20 years left out of 30 will result in a higher amount paid in interest over the lifetime of the loan, and perhaps a larger interest payment if refinanced. There are two calculations to follow when trying to find fast cash from refinancing:
- One calculation where the new loan has the same term as the old loan
- One calculation where the new loan is the length of the planned refinance
From there, consumers can compare the interest savings to see if refinancing reaches their financial goals.
When to not refinance
There are specific instances when a refinance will not help. For example, if a homeowner doesnt plan on staying in a home for very long, its most likely a better idea to stay in the current mortgage. Taking the savings that people must accumulate to cover closing costs, the stay in the property could be longer than anticipated. People with underwater mortgages should probably stay with the current mortgage. It isn’t likely a homeowner with an underwater mortgage will find a lender.
Another reason to not refinance is hefty prepayment penalties. The penalty payment creates another expense for homeowners to factor into the overall cost of the refinance. Homeowners might be better off waiting until the initial two or three years of the active pre-payment penalty has passed. It’s likely refinancing down the road would be better.
What’s good about refinancing
Despite the tricky calculations regarding refinancing, it still can benefit many homeowners if done in the right way and at the right time. Refinancing can net some fast cash for people who are smart about the decision. A good financial planner or online banking tool can help steer consumers in the right direction when facing the prospect of refinancing or not.
But the truth is refinancing might be a good idea both in bad and good real estate markets. It can be vital to be familiar with what's involved with refinancing, when it might be appropriate and what you need to look out for. This can be a somewhat confusing should you be new at all to it but the material you'll find right here can help.