Making The Most Out Of Refinancing

Many Americans are looking for debt solutions.  There are many options, however, one of the best solutions is often overlooked.  A debt solution that is becoming more popular in recent months is refinancing.  Refinancing to a lower interest rate can free up some money each month by lowering your payment.  That money can then be used to pay down some of your unsecured debt.  Although rates are great for refinancing right now, anyone considering refinancing their mortgage should look for a few key elements in an offer.

Click here to see if you qualify for a refinance.

Interest Rate

interest down arrowThe main goal behind refinancing a mortgage is to lower monthly payments, which is typically done by lowering the interest rate associated with the loan. Depending on when the original mortgage was taken out, refinancing could lower the interest rate by as much as 5%. However, not everyone will qualify for such a good rate. Even lowering the rate by as little as a half to one percent can be significant savings over the life of the loan. A good rule of thumb is that the interest rate must be lower by at least: (a) a half a percent if long term savings is desired or (b) one to two percent if lowering the monthly payment is the goal.  A mortgage calculator is a great way to quickly estimate what your payment may be with a lower rate.  Just don’t forget to factor in closing costs.

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Loan Term

Refinancing can also adjust the loan term of the mortgage, which can save money in payments. Increasing the loan term, say from a 15 year to a 30 year mortgage, can significantly lower the monthly payment required on the mortgage. However, this is also going to increase the total amount of interest paid on the loan in the end. Decreasing the loan term can provide long term savings in interest payments, but will come with a higher monthly payment. The overall goal for refinancing should be considered before any changes to the loan term are made.

Closing Costs

Since refinancing creates a new mortgage loan, they are subject to the same closing costs as the original loan; in most cases. Many people fail to consider the potential out of pocket costs associated with refinancing, many of whom cannot afford these costs when in need of lower monthly payments. However, some lenders offer no-cost refinancing loans. The lender will either waive the closing costs in exchange for a higher interest rate on the loan, or the fees can be rolled into the life of the loan. Again, it is important to consider the short and long term goals before refinancing. This can help prevent further problems with mortgage debt or financial strain.

with contributions from: C. Lee

DISCLAIMER: Neither Indiana VA Mortgages ( nor NEO Home Loans is affiliated with any government agencies, including the VA.