Practical Guide for Home Mortgage Refinancing
Are you a homeowner considering attractive offers of home mortgage refinancing program because you have a flexible-rate home mortgage loan? Perhaps you are enticed by positive news surrounding President Barack Obama’s initiatives that offer home mortgage refinancing to Fannie Mae or Freddie Mac mortgage loans.
Before you go to your lender and negotiate a home mortgage refinancing deal, study first your options using your real data. The low home mortgage loan rates and the reduced monthly payments being promoted might just be attractive covers that hide higher costs. After correct calculations and analysis, you might find that maintaining your current mortgage terms are better for you in the long run.
First, ask yourself whether you are going to occupy your home for a long time. Are you planning to sell it in a couple of years? Second, research the movement of home mortgage rates. What would be their level in the next few months and in the next year? Third, check if there is a cap on your adjustable rates and then make calculations if it is manageable.
Some adjustable home mortgage rates are not as bad as they are described in commentaries. While some ARMs have very short adjustment periods, there are some ARMs written in the traditional way, which have longer adjustment periods. The most problematic ARMs for homeowners are those which change frequently, anywhere from 30-day periods to 180-day periods. These ARMs would be remedied by home mortgage refinancing. According to housing analysts, these types of ARMs caused the subprime credit crisis because subprime borrowers saw only the initial low monthly payments. They did not see how the monthly payments would soar in just a few months.
To calculate whether your ARM is troublesome or not, note the following: the index in which your home mortgage interest rate is based, the date of your loan adjustment, your yearly adjustment cap, your lifetime adjustment limit and your initial adjustment cap. If for example, your ARM loan is rated 6-percent with a 5-percent cap, you would be battered with an overwhelming 11 percent when your rate adjusts.
Next, calculate your fully indexed rate, which is the current index rate plus the margin. If your fully indexed rate is higher than your fixed-rate mortgage rate (FRM), then home mortgage refinancing is recommended.
Another point to consider is your break-even point, the point when your upfront refinancing costs equal the savings you obtain from the reduced monthly payments if you refinance.
Consider the time difference in paying between the old loan and a refinanced loan, additional refinancing costs, prepayment penalties and the interest you would earn from the money you will use to refinance.
Finally, if your calculations and deep analysis of yourself and your lifestyle point to home mortgage refinancing, then use whatever leverage you have and go to your home mortgage bank and work out a refinancing deal.
