Helpful Advice for Home Mortgage Shoppers
Refinancing your mortgage is almost always a good idea. Whether you’re looking to reduce payments in the short term or save money in the long term, refinancing your mortgage gives you the tools you need to fit your loan’s terms to your current financial circumstances.
To make sure you refinance your mortgage in a favorable manner, consider the following helpful advice.
Long Term Repayment vs Short Term Repayment
Above and beyond anything else, always remember this general mortgage tip:
- The slower you take to pay off your loan, the more that loan will cost you.
- The faster you pay off your loan, the cheaper that loan will be.
Even if you plan on staying in your new home for the rest of your life, always design your terms so you can pay it off as quickly as you possibly can.
Lowest Rates Aren’t Always the Answer
You’re probably thinking of refinancing your mortgage to take advantage of low interest rates. This is often a really good idea, though you need to remember the economic conditions that lead to low interest rates sometimes bring with them strict new regulations and lending standards.
Verse yourself on what’s changed in the mortgage market before you make your mind up about refinancing.
Take Inflation Into Consideration
Mortgages can take a long time to pay off. With the average home mortgage repayment spread out over 30 years it’s obvious the inevitable force of inflation will play a part in how many real dollars you end up spending on your home, and what your home is actually going to be worth by the time you pay it off.
Aside from changes in your purchasing power inflation plays a huge role in determining interest rates at any given moment. As a general rule when inflation increases, interest rates increase as well. If you anticipate inflation will rise then you can predict increased interest rates and you can make an informed decision about whether you want to sign up for an ARM or Fixed Rate Mortgage.
How Fixed is Your Fixed Rate Mortgage?
There is no monolithic Fixed Rate Mortgage out there. You can choose how long you want to “fix” the interest rate on your mortgage when you refinance.
If you think interest rates are going to rise for the next five years and then spike sharply downwards then take on a short-term Fixed Rate Mortgage. If you think interest rates are as low as they’re going to be for the next couple decades, set your interest rate and forget it.
Fixed Rate vs ARM?
Long-term fixed rate mortgages aren’t the best option for everyone and tend to best benefit those people who plan on:
- Living in their property indefinitely.
- Taking on a full 30-year repayment plan.
If you plan on flipping your home in 5-10 years, or if you plan on repaying your loan in a very aggressive manner, then an ARM usually factors out better than a Fixed Rate Mortgage.
Keep Refinancing Costs in Mind
Much like signing on to your loan in the first place, the refinancing process is filled with hidden fees, surcharges and expenses. Before you decide to refinance you need to first make sure the amount of money you will save by refinancing your loan is greater than the amount of money you will spend during the refinancing process.
For example, let’s say you realize refinancing your loan will save you $4,000 over the next 10 years. You then run the math, arrive at some estimates, and realize it will cost you $5,000 in fees to actually refinance your loan. In this case refinancing would result in a net loss of $1,000.
Most of the time refinancing saves you money, even after you take fees into account, but always run the numbers first to make sure your grand plans will actually save you money, all things considered. By utilizing our home mortgage calculator, you can closely estimate your monthly payment, the total amount of interest you will pay over the course of your loan, and how much you might save if you purchase points up front, or pay off your principal more quickly than the original loan terms dictate.