Refinancing Mortgages: Wise Moves To Save Money
In the home loan market today with the unsettling conditions, homeowners are wisely looking at their options for refinancing mortgages. Fluctuating interest rates, slowing house prices and the sub-prime mortgages crisis have all helped to send the home buyers market into a spin. Making the decision to switch lenders or re-arrange mortgages could be an excellent move, if it’s for the right reasons.
Refinancing mortgages to release equity.
One of the main reasons for refinancing mortgages is to free up the equity already built up in the property. Many homeowners are tempted to go down this route to clear other debts, pay for new cars or vacations, or for school fees for example. While refinancing mortgages can help, borrowers need to be aware that the overall mortgage term would be extended and payments will go up to meet the higher amount of the loan. On the other hand, releasing equity for investments, new businesses and other ventures can be a lucrative move if the expected return is higher than the interest rate on the mortgage.
Refinancing mortgages for a lower interest rate.
This is generally the best money saving reason for refinancing. Mortgages with a fixed rate could be costing home owners more money if the interest rate drops by a reasonable amount. Homeowners must, however, take into account the cost of refinancing mortgages – lenders fees, home appraisals, and legal costs all add up. Generally this method will reduce the regular mortgage payments but only if the amount of the loan is not increased, or any cash equity is released.
Refinancing mortgages to build equity.
Circumstances change and homeowners who now have a better income, or fewer outgoings should consider refinancing mortgages for a shorter term in order to build up the equity in their homes quicker. With 10 or 15 year loan terms as opposed to the original 30 years for example, can save borrowers a vast amount of money in the future. Of course, refinancing mortgages in this way will cost more each month, but the loan will be paid off much earlier and the equity in the home will increase faster.
Other good reasons for refinancing mortgages include changing the type of loan to take advantage of the market conditions, or to improve the type of mortgage after rebuilding a better credit rating.
There are many things to consider when refinancing mortgages, not least the current state of the market, the homeowners’ financial position and particularly their future plans. There would be little point in refinancing now, if the borrower intends to sell their home within a short period of time. Fees and legal costs would likely cancel out any potential short-term savings.
Refinancing mortgages should be a carefully thought out decision, taking into account all the important aspects of changing lenders, the market conditions and interest rates. The main consideration should always be whether re-mortgaging will improve the borrower’s financial position in the longer term.
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