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BellaOnline's Home Ownership Editor


Refinancing at Lower Rates

Guest Author - Rose Mary

There are various times that opportunities happen in which a home owner finds it in their best interest to refinance a mortgage. During a booming real estate market, many will refinance to take their built up equity from their home as a cash out refinance. In a depressed real estate market, many home owners can take advantage of low mortgage interest rates by refinancing.

Who should refinance?
If a home owner has good credit and steady employment, it is possibly a good idea to refinance when the current interest rate is 1% or more lower than the interest on the present mortgage. Home owners need to take into consideration that refinancing does cost money, several thousand dollars, which savings may not be recognized for several years. Although looking over the long term savings of the mortgage, it still might be a good idea for a refinance.

Fixed Rate or Adjustable Rate?
When mortgage interest rates are extremely low, as they are at the current time, it is best to refinance to a fixed rate. A fixed rate will guarantee a fixed payment over the life of the loan as the rate can never change. Adjustable rates fluctuate with the market and are more unpredictable.

15 Year Mortgage or 30 Year Mortgage?
This is really an individual decision depending upon how fast you wish to pay off your home and how much you can afford to pay per month for your mortgage payment. When interest rates are very low, it is advisable for some home owners to refinance from a 30 year mortgage term to a 15 year mortgage term. A large amount of money is saved by reducing the term of the mortgage by half. In addition, the home is paid in full in half the time.

If a lower monthly payment is required, then a 30 years mortgage term is advisable. The 30 year term will result in a lower monthly payment but the total interest paid over the life of the loan will be a higher amount. Anyone who has a 30 year term mortgage can always accelerate the life of the loan by making additional principal payments to the loan. Even just a few additional payments each year can greatly reduce the years left on the mortgage and thus, reduce the overall interest owed. This is a great idea for those who don't want the strict 15 year mortgage payment but can possibly pay more each month.

At this time, when mortgage rates are at record lows, every home owner should evaluate their financial situations to see if it would be to their advantage to refinance their mortgage. Ultimately, this could free up some very needed cash each month for spending, saving or paying down other debts.
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