There are many good reasons to consider
refinancing. Many times, lenders find themselves locked into situations that
are not only hard to combat, but often financial debilitating. High interest
rates are almost always the cause for this and it usually has to do with early
financial success that might wane or an economy that shifts rapidly without your
financial means shifting to match it. If the cost of food and gas increases 300%
and you are still making the same amount of money, a mortgage payment that was
once well within your means becomes suddenly much harder to maintain.
Refinancing offers an option to take on a new loan with a more realistic rate
that you can afford.
When refinancing a mortgage, the
second loan is used to repay the first loan and is often a better loan than
the one you originally obtained. Your home is still used as collateral and
nothing changes in regards to the terms (in most cases), but the payments
you make, as well as the time it might take to pay the loan off will change.
Whereas you may have been paying 30% of your salary for the next 23 years on
your home, you might now be paying 20% for the next 30 years. These terms
are of course highly variable and will depend on your situation, the equity
of your home, and what your new financial institute is willing to offer.
Knowing when to refinance is half of the problem for many
people. They think they can wait a little longer or that they may not be
eligible to do so, but the earlier you consider your options, the better off
you will be. Any time you can lower your interest rate, even by as little as
1%, you should consider refinancing. Waiting for a major dip in rates or for
your credit to improve while you make massive, debilitating payments is not
a good way to go.
Even when a refinanced loan saves you
money on monthly payments, there are instances when a loan may cost you more
money or time, or when penalties and fees can be just as debilitating as
your previous payments. Your best option because of this is to contact a
financial professional and discuss your options at length. Make sure you
know exactly what you are getting and what you will be paying before you