Mortgage Refinance - Does the Advantages Outweigh Disadvantages

If you are unable to pay your mortgages on time or if you think that you are paying too much mortgage, then what are your options?

A mortgage refinance loan is any new loan incurred to pay off the original mortgage loan. Whenever there is low rate refinance advertisements, many home owners rush to these lenders to obtain refinancing. Usually, these refinance mortgages include some fees that are high sometimes. If a lender is not charging any fee, then there must be some other way the lender is making money. The mortgage refinance is a business and the mortgage broker has to make money. If low interest rates are available, should you refinance? Read further to find out.

Adjustable Mortgage Rates (ARM)

In my opinion an ARM should be a last resort when refinancing a home. ARMs are affected by the federal rates. Specifically, the ARMs are affected by Treasury bill rates and federal rates.

So, why do people still go after ARMs? ARMs are not for everyone. They are usually pushed to people who plan to stay in a house for a short term. Short term house owner, maybe an investor, can get this loan at a low Adjustable rates which maybe lower than the fixed rates. That means less money paid out per month. An invester is more worried about the bottom line, not loan principal. Another consumer group that often use this line of credit are first time home buyers and people with average or poor credit. Typically both groups do not qualify for fixed rates so that is why ARMs are suggested for them. If you have an ARM, then refinancing can be very advantageous.

Fixed Rate Mortgages

For fixed rate mortgages, the drop in interest rates by the Federal government does not result in lower rates or money savings for fixed rates. For a fixed rate, the bond rates guide the fixed mortgage rates so the fluctuations in federal rates will not affect the fixed rate mortgages. If you can get the best interest rate for a fixed rate mortgage, then it is best to lock in your rate for a 30-year mortgage. At least you will not have to worry about the interest rate fluctuations.

Home Equity

These are affected by the federal interest rate so when interest rates are low, then it is a good idea to obtain a home equity loan.

Advantages

1. Money in Your Pockets: In many cases, the borrower receives cash that can be used to invest in higher returns.

2. Reduced Payments: Since the monthly interest rates are lower, the total payment is reduced provided you stay in that house longer.

3. More money to invest: Since your monthly amount is reduced, the extra money left over from the principal of every month can be invested in some other place for a better return.

4. Reduced amortization period: Since your total amount is reduced, you could pay more every month and reduce the term of your payment.

Disadvantages

1. Higher mortgage amount: If you opt for cash-out refinance (you get cash), the total loan amount will be more. Also, if you add the costs incurred in obtaining the refinance mortgage, your total mortgage amount could be higher.

2. Refinance cost: If you are paying a huge amount of fees to obtain the refinance loan, then that itself could add to the total mortgage payment. Always, add the loan fees to the refinance amount and this will give you the total. Now, determine whether the old mortgage or new refinance loan is better.

In conclusion – after weighing in all the advantages and disadvantage of a refinance loan, if you decide to refinance, then contact your current lender for a better rate or waive off some fees. Chances are you could get a better rate from your current lender and so you do not have to go through the trouble of researching refinance lenders. Remember it is always better to work out various options to reduce your payments and save some money. If cannot get a better payment plan, rate or fee waivers from you current lender, then start researching online for refinance mortgage brokers. The advantage of online mortgage broker is that you have many options - you can apply online and have the brokers contact you. The mortgage brokers who contact you already have some basic information about you and know that you may qualify for a loan, so you can be confident that your chances of approval for a refinance mortgage is higher.

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