Home Refinancing: The Basics

Refinancing home mortgages has become very popular in recent years. In fact, the Mortgage Bankers Association reports that the average American refinances his/her home every four years. Sheri can help you refinance your home to save money over the years. Home loan refinancing involves taking out a new mortgage to pay off your old one. There are many reasons why you might consider refinancing:

• To get a better fixed rate. If interest rates have dropped since you took out your mortgage, you might be able to save as much as a couple hundred dollars per month by refinancing.
   
• To improve your adjustable rate mortgage's (ARM's) features. ARM's come with caps on how much your payments can increase over certain periods of time. Refinancing could lower these caps.
   
• To switch to an ARM or a fixed rate mortgage. If interest rates are on the rise, you might consider a fixed rate mortgage to lock in an interest rate. Conversely, if you would like lower monthly payments and are willing to take the risk of rate fluctuations, refinancing with an ARM might be your best option.
   
• To boost home equity or turn equity into cash. If your financial situation now permits you to make higher monthly mortgage payments, you can refinance for a shorter term and pay your home loan off faster. Or you could convert some of your home equity into cash with a refinancing loan to cover a large expense.
   
• To lower monthly payments. If you are struggling to make your current mortgage payment each month, you can refinance for a longer term, thus reducing the amount of your monthly payment.
   

Is Refinancing Right for Me?

Ask yourself the following questions to see if refinancing your home will makes sense for you financially:

• How long do you intend to stay in your current home? Typically, the longer you intend to stay in your home, the more money you'll save by refinancing.
   
• What is the penalty for early payment on your present mortgage? Most mortgages charge a fee for prepayment. This will vary by mortgage and lender
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• What is the total cost of the new mortgage? Fees may include legal representation, application, insurance, appraisal, and title search. Take all costs into account.
   
• What is the real difference in cost between the two mortgages? Don't just look at interest rates. Fees, the type of rate (ARM or fixed), and the length of the loan all influence total cost. Compare APR's for the best representation of total cost.
   
• How much will I lose in tax savings? If you deduct home loan interest from your taxes, then refinancing to a lower interest rate might mean lost tax savings. Balance this loss with the savings you will realize with the new mortgage.