Refinancing your Home
Refinancing your home can cut your monthly mortgage payments. It also may allow you to tap into the equity in your home to pay off other loans and credit cards - while still deducting your mortgage interest from your taxes.
People also refinance to convert their adjustable loan to a fixed loan. The main reason behind this type of refinance is to obtain the stability and the security of a fixed loan. Fixed loans are very popular when interest rates are low, whereas adjustable loans tend to be more popular when rates are higher. When rates are low, homeowners refinance to lock in low rates. When rates are high, homeowners prefer adjustable loans to obtain lower payments.
The answer to the question “Should I refinance?” is a complex one, since every situation is different and no two homeowners are in the exact same situation. Even the conventional wisdom of refinancing only when you can save 2% on your mortgage is not really true.
Refinancing your home loan follows the same process as your initial mortgage application, where a low debt to income ratio is important in gaining finance approval. A high debt to income ratio will limit your chances of approval for refinancing your home loan, and in the unlikely event it is approved, the terms are likely to be so costly that taking the refinance option would not be worthwhile.
Other types of mortgage rates are based on the term of repayment rather than the down payment. Most people go for a fixed 30 year term. In this case, the loan is repaid by the borrower in 360 installments stretching over a period of 30 years. The monthly payment to be made is fixed at the beginning and these rates continue for the rest of the payment period until closing. Another similar mortgage is the 15 year fixed rate mortgage. In this case the repayment is for a period of 15 years in 180 monthly installments. Like the 30 year fixed mortgage, the rates to be paid for the entire repayment duration is fixed.
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