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Refinancing A lower rate means lower payments If rates have fallen since you took out your current mortgage, refinancing now may get you a lower rate. That means your monthly payments will go down, assuming the interest rate is all that changes. Lower payments are great, but will they actually save you money? That depends on the cost of taking out a new loan, how long you plan to stay in your home, and how much less you will be paying each month. You can consolidate your debt from things such as high-interest credit cards. You will be left with a fewer number of bills to pay each month. In addition, your overall monthly payments can be reduced substantially. Refinancing to a shorter mortgage term with help you pay off your loan faster. Over the life of the loan, it's possible to save thousands of dollars in finance charges. Besides reducing your interest costs, a shorter loan term helps you build equity faster. That means you'll have a growing source of wealth to draw from when you need it. Another way to reduce your monthly payments is to lengthen your loan term, which is the length of time you spend repaying it. With your payments spread out over a longer time period, each one will be smaller. The drawback to this approach is that because you will repay the mortgage principal more slowly, you may end up paying more interest overall. By refinancing your mortgage, you may be able to get extra cash for the things you've always wanted to do. You could start a home business, pay college tuition or take a dream vacation. Refinancing may make it possible to do some major home repairs or start a new home project. If you plan to move in the next few years, you may be able to save some money by refinancing your ARM loan. Usually an ARM will start off with a lower interest rate than a fixed-rate loan, and that rate can stay in place for up to 10 years. Simply choose an ARM that isn’t scheduled to adjust to a higher interest rate until after you plan to move. Refinancing FAQ's: |
