Refinancing Options: Lowering Interest Rate and Monthly Payment

There are usually two reasons people refinance their homes—to get cash out or lower the interest rate. The timing is important, and the best time is when you will come out of the closing with an advantage but with little risk. If you are simply trying to lower your monthly payments, there are several considerations and methods for doing this.

Through this article, you will be provided the information you will need to fully understand how home mortgage refinancing can assist you in lowering the interest rate and monthly payment you have to pay on your home loan. Done properly, you can save a great deal of money through home mortgage refinancing.

The Rule of Thumb: What the Experts Will Tell You

While financial advisors will tell you to wait until you can save at least two percentage points before you refinance, the low cost and no cost loans make it possible to go with less of a difference in the interest rate. Make sure this will benefit you in the long run. Find out how much interest you will pay over the entire life of the loan before you commit.

Calculate Total Interest Paid

In any case, total interest paid is an excellent indication of whether you should refinance with any loan. If you have been in your house ten years, for instance, refinancing will force you to begin your amortization process over again. Your first payment of the new mortgage will be like your first payment of your old mortgage—almost all interest. For those who have been in a home a long time, refinancing may be a horrible deal even when it does lower your monthly payments and interest rates.

Home Mortgage Refinancing and an ARM

For those who are facing an increase in interest rates due to an ARM, refinancing to a fixed rate mortgage—or even a better ARM—may be a way to at least prevent the rate from continuing to climb. While you don’t want to make a habit out of refinancing, one refinancing could mean a lot of savings to an ARM holder if interest rates are about to rise sharply. Keep your finger on the pulse of trends.

Don't Forget the Impact of Interest Rates on Tax Deductions

Remember as you reduce interest payments, you also reduce tax deductions. While this is usually not an appreciable amount, for those with large loans or high income it can mean more. The tax calculator at www.dinkytown.net can give you a good idea of how your taxes will be affected, although you should check with your tax advisor for an official opinion.

Get It In Writing: Obtain a Written Interest Rate Commitment

Even if your loan representative has shown you that you can lower your interest rates and monthly payments, get a promise in writing that the lender will hold your interest rate until closing. Often they will only guarantee it for 60 to 90 days. But if your lender won’t float your interest rate and guarantee the number of points you will pay at closing, consider changing lenders. Also try to get a guarantee that your interest rate would go down if the current rates go down, but if they go up it would not change.