On average, the typical American family will refinance their homes every four years. Refinancing has become more common with the low interest rates and the housing slump. Before diving headfirst into a home refinance, there are some home refinancing basics that should be looked into before any forms are signed.
There are many reasons why people look into refinancing their mortgage. The most common reason is to lower a monthly payment. The lowering of an interest rate can dramatically lower a payment and can even cut down on the length of the loan. Another reason people look into mortgage refinancing is to go from an adjustable rate to a fixed rate. With a fixed rate, the interest will never change over the life of the loan.
Another reason people look to refinancing is they see it as a way to build equity in their home faster. By refinancing, you can lower your payment amount, lower the length of your loan or both, and this allows you to put more towards the principle of the loan. The more that is paid towards principle, the less that is owed on the home. The larger the gap between what the home is worth and what is owed on the home, the more equity that is in the home. This equity can be used in many ways.
Before refinancing, it needs to be determined if it makes sense to refinance. There will be costs that are associated with refinancing and the length of time it takes to break even on those costs will be important. If you plan to stay in the home for the length of the breakeven point or longer, refinancing is recommended. If you will be moving before the breakeven point, a refinance may not be recommended.
What else is part of home refinancing 101? Reading all of the details and the fine print before going through with the new loan. This will allow you to know all of the terms of the loans, all of the fees of the new loan and exactly what is expected from you and from the mortgage company. Being uniformed can be costly.
Do not wait too long before deciding to refinance. While the interest rates have been low for some time now, these rates will not stay this low permanently. When the economy begins to rebound as well as the housing market, the interest rates will begin to go up as well.