Is It Time to Re-Finance?
Whether or not to re-finance is a problem homeowners deal with many
times while they are living in their home. Re-financing is essentially
taking out one home loan to repay an existing home loan. This may
sound odd at first but it is important to realize when this is done
properly it can result in a significant cost savings for the homeowner
over the course of the loan. When there is the potential for an
overall savings it might be time to consider re-financing. There are
certain situations which make re-financing worthwhile. These
situations may include when the credit scores of the homeowners
improve, when the financial situation of the homeowners improves and
when national interest rates drop. This article will examine each of
these scenarios and discuss why they may warrant a re-finance.
When Credit Scores Improve
Presently so many home loan options accessible, that even those with
poor credit are likely to find a lender who can assist them in
realizing their dream of purchasing a home. However, those with poor
credit are likely to be offered unfavorable loan terms such as high
interest rates or variable interest rates instead of fixed rates. This
is because the lender considers these homeowners to be higher risk
than others because of their poor credit.
Auspiciously for those with poor credit, many credit errors can be
repaired over time. Some financial blemishes such as bankruptcies
simply disappear after a number of years while other blemishes such as
frequent late payments can be minimized by maintaining a more
favorable record of repaying debts and demonstrating an ability to
repay existing debts.
When a homeowner’s credit score increases considerably, the homeowner
should inquire about the possibility of re-financing their current
mortgage. All citizens are entitled to a free annual credit report
from each of the three major credit reporting bureaus. Homeowners
should take advantage of these three reports to check their credit
each year and determine whether or not their credit has increased
significantly. When they notice a significant increase, they should
consider contacting lenders to determine the rates and terms they may
be willing to offer.
When Financial Situations Change
A modification in the homeowner’s financial situation can also warrant
investigation into the process of re-financing. A homeowner may find
himself making considerably more money due to a change in jobs or
considerably less money due to a lay off or a change in careers. In
either case the homeowner should investigate the possibility of
re-financing. The homeowner may find an increase in pay may allow them
to obtain a lower interest rate.
Conversely a homeowner who loses their job or takes a pay cut as an
outcome of a change in careers may hope to refinance and consolidate
their debt. This may result in the homeowner paying more because some
debts are drawn out over a longer period of time but it can result in
a lower monthly payment for the homeowner which may be advantageous at
this juncture of his life.
When Interest Rates Drop
Interest rates decreasing is the one warning sign that sends many
homeowners rushing to their lenders to discuss the possibility of
re-financing their home. Lower interest rates are certainly appealing
because they can result in an overall savings over the course of the
loan but homeowners should also realize that every time the interest
rates drop, a re-finance of the home is not warranted. The caveat to
re-financing to take advantage of lower interest rates is that the
homeowner should carefully evaluate the situation to ensure the
closing costs associated with re-financing do not exceed the overall
savings benefit gained from obtaining a lower interest rate. This is
significant because if the cost of re-financing is higher than the
savings in interest, the homeowner does not benefit from re-financing
and may actually lose money in the process.
The mathematics associated with determining whether or not there is an
actual savings is not too complicated but there is the possibility
that the homeowner will make mistakes in these types of calculations.
Fortunately there are a number of calculators available on the
Internet which can help homeowners to determine whether or not
re-financing is worthwhile.
ABOUT THE AUTHOR
Bob Schwartz, is a Certified Residential
Specialist, CA licensed real estate broker with
www.Brokerforyou.com. Bob
has over 27 years of residential real estate experience, authored a
number of published articles and served as an expert witness for
San Diego lawyers. You can contact
Bob via e-mail at bob@brokerforyou.com or visit his highly popular
San Diego real estate website at:
http://www.brokerforyou.com
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