Friday, November 15, 2013

Should You Refinance Your Home?

Refinancing your home has the potential to save you thousands of dollars but there are situations where refinancing might not be right for you...

Refinancing is NOT advised if:
  • You’ve had your mortgage for a long time. Later in your mortgage more of your payment goes toward principal reduction. 
  • Your current mortgage has a prepayment penalty. Often times the prepayment penalty will outweigh the benefits of refinancing. 
  • You plan to move within the next few years. Lower monthly payments might not outweigh the costs of refinancing. Use the break-even calculator to determine if it would be worthwhile for you. 
If the above scenarios do not apply to you, refinancing could be a smart move. The following are a list of the benefits refinancing could provide:
  • Lower your interest rate. Typically the lower the interest rate, the lower the payment. Lower interest rates are possible because of market changes and improved credit scores. 
  • Adjust the length of your mortgage. 
    • Increase the term of your mortgage: This will reduce your monthly payment. It will also increase the duration of your payments and the total amount you pay for your home.
    • Decrease the term of your mortgage: This will reduce your interest rate, shorten the duration of your loan and reduce the total you pay for your home. However, it will increase your monthly payment. 
  • Change your mortgage type. With an adjustable-rate mortgage, or ARM, your monthly payments will change as the interest rate changes. If you switch to a fixed-rate mortgage you are guaranteed your mortgage will be the same each month. 
  • Get an ARM with better terms. Not all ARMs are created equal. If you want to stick with an ARM you may be able to find one with a lower starting interest rate, smaller interest rate range or lower payment caps. 
  • Cash in on Equity. When you refinance for more than you owe, you can receive the difference in a cash payment. You can use this money to pay off other debt, however you will have less equity in your home (“A Consumers Guide to Mortgage Refinancing” The Federal Reserve Board). 
If you still have questions and are unclear if refinancing is in your best interest, don't be afraid to use the staff members at MMFCU as a resource. We're with you all the way!

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