We are caught up, as consumers, in finding any way possible to help fit into our budgets. That means that refinancing options are being explored as ways to make this happen. Saving money anywhere possible leaves money available to use in more important places in our budget as well.
So, is it possible to always save money when you refinance your house at a lower rate? It depends.
Lower payments. The goal of a refinance program for borrowers is a lower monthly payment. This is a short-sighted goal. You should not be of a mindset to just fit into a lower payment. You should have as a major goal to pay off your mortgage so that you can one day own the house free and clear. Or, at least pay off enough of the loan so that if you do have to sell, you will have some equity from which you can benefit and use as a down-payment on another house.
Starting over. When you refinance, you start the 30 year process all over again unless you take out a 15 year mortgage and that is not likely since you are trying to save money on a monthly payment. What this means is that if your original mortgage was for 30 years and you have made the payments for five years on that mortgage, you will now be extending that to a 35 year term. This, plus the fact that the amount of interest that you pay is loaded up at the front of the mortgage, means more goes to interest and less to principle.
Fees and costs. Refinancing has its own closing costs and fees, just as you paid when you first bought the home. Get ready to pay these again. Better it would be for you to take that extra money and pay off some smaller, short term debt to give your budget some needed room in which to operate. Do not ignore what can be done by lowering your overall debt load in other ways before considering a refinance.
Avoid the ARM. If you do choose to refinance, be sure to avoid any offers of an Adjustable Rate Mortgage. Attractive because of rates, they can get you in just a few years down the road with higher payments which will put you right back where you were before.
Take a good, hard look at refinancing before you do and make sure it makes financial sense for you. Be better off, not more in debt.
Avoid the ARM. If you do choose to refinance, be sure to avoid any offers of an Adjustable Rate Mortgage. Attractive because of rates, they can get you in just a few years down the road with higher payments which will put you right back where you were before.
Take a good, hard look at refinancing before you do and make sure it makes financial sense for you. Be better off, not more in debt.