Should you find yourself in a similar position, burdened by the weight of a mortgage commitment that you are battling to cope with, one option which may well be worth your consideration is home loan refinancing. Home loan refinancing is not the ideal solution for everyone, but it can certainly result in circumstances that are easier to manage and maintain in a number of cases.
When is refinancing appropriate?--There are various situations in which refinancing your home loan is worthy of consideration. In cases where an adjustable--rate mortgage is in operation and the interest rate has reset to a higher rate than the initial low rate, it may be a good time to refinance. The good thing about adjustable--rate mortgages is that the interest rate can be tweaked over the loan term. That can be advantageous at times when rates are in decline. However, it is important to bear in mind that you may still be paying more each month in spite of this flexibility than you would be with a fixed--rate mortgage. It depends on what interest rates are doing at any given point in time.
Considering the cost factor--When seriously contemplating the refinancing of your home loan, it's important to consider how long you realistically see yourself living in your home. Closing costs associated with mortgage refinancing can often run into the many thousands of dollars. You need to think about what period of time it would take for you to break even again.
For example, consider a situation where a 1% drop in the interest rate would lower your mortgage payment by one hundred dollars. That represents a significant saving for many people. However, if the closing costs associated with your loan refinancing add up to three thousand dollars, it means that it will take a period of 30 months before you recover the cost. This is less of an issue if you know that you will be living in your current home for many years to come. The converse is also true of course. If you feel that there's a strong chance that you would be moving in the next 2-4 years, then that refinancing option begins to look less attractive.
The equity in your home--Another important factor to bear in mind is how much equity you have in your home at the time you are thinking about refinancing. Most lenders will not entertain the idea of refinancing if there is less than twenty percent equity in your home. While it's true that having an equity amount below twenty percent does not necessarily disqualify you, it does mean that you will not receive the best rate possible.
Furthermore, if you've been living in your home for quite some time and have accumulated a significant amount of equity, you may well be able to save even more by refinancing an amount that is significantly smaller than the initial loan that you qualified for. At the end of the day, that means more money in your pocket at the end of the month.
Be mindful of the modified terms--Don't make the mistake of forgetting that refinancing may result in the extension of the term of your loan. You may have been making payments for 10 years on a fixed-rate home loan over thirty years, leaving you with 20 more years to go. If you choose to refinance however, you may be dealing with a new 30-year mortgage commitment, albeit with lower payments. This is an important factor to bear in mind.
As previously stated, mortgage refinancing has brought relief to a number of struggling American homeowners, but it is not for everyone, or for every circumstance. Many people have discovered that their circumstances are better suited to home loan modification instead.
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