Potential Costs And Benefits of Mortgage Refinance
Are you considering refinancing your existing mortgage loan? Mortgage refinance could be a smart strategy under certain circumstances, but you should evaluate the potential benefits and costs carefully before going ahead with it.
- Reduction in Interest Rate: If the currently prevailing interest rates are cheaper, you might be able to save money in the long run by refinancing your mortgage. This is one of the main motivations for many people who seek refinancing.
- Shorter Loan Term: Depending on your financial position, it might be beneficial for you to refinance your existing mortgage into a shorter-term loan. The interest rate on a shorter-term loan is likely to be lower, which could effectively save you a significant amount of money over the life of your loan.
- Change Your Mortgage Type: Mortgage refinance gives you an opportunity to change from a fixed-rate mortgage (FRM) to an adjustable-rate mortgage (ARM) or the other way round. If this change is more appropriate to your current financial circumstances, you could benefit from a mortgage refinance.
- Consolidate Your Debts: Sometimes you may have multiple mortgage loans, and you may find that consolidating them into a single loan can get you a lower interest rate. Even a small difference in the interest rate can deliver a substantial saving over the loan term.
- Interest Costs: If you are choosing mortgage refinance with a goal to reduce your monthly payments, you may have to increase the term of your loan. This may result in higher interest costs over the life of your loan. Therefore, consider the cost vs. benefits carefully before going ahead with refinancing.
- Closing Costs: Before you sign on the dotted line for a loan refinance, you should assess the closing costs that will be involved. Mortgage refinance may make financial sense in some cases only when the resulting savings are considerably higher than the closing costs.
While mortgage finance is increasingly popular in a low-interest-rate environment, it is prudent to weigh all the costs and benefits before you make a decision.