Mortgage is inevitable and important part of life for each American, so let’s consider what to do to make its burden less harsh. It has to be said that one of the best ways to decreases mortgage costs is to enforce mortgage points – you can read about it in our article.
One more way to save on mortgage is going to be disclosed in this article – it is mortgage refinance. So let’s consider the types of refinances available:
- term-and-rate refinancing – allows you to decrease the interest rate and loan term significantly – it may lead to increase the monthly payment though, but the overall sum paid is going to decrease dramatically:
- cash-out-refinance – means that you just take a new mortgage on a larger sum and you can use the difference on your own premises;
The second type of mortgage can usually be chosen if you are going to give up on mortgage or if you are experience the shortage of funds. The first allows you to save on your mortgage significantly.
In order to choose any of these options and enforce it in right moment you should go through specific steps.
Step 1: Calculate the Difference
No matter which refinance method you are going to use – make sure you have provided yourself with advanced calculation. You need to encounter both the difference between the monthly payments and overall sum and do not forget to consider the period and inflation.
For example, now you have $100 K mortgage left to pay with a monthly payment of $2000. That means you need to pay $2000 per month for the next 50 months. And if you are able to replace on other terms like $4000 per month for 24 months it is going to be a good deal as a result you are going to save $4000 dollars due to decrease of interest rate. However, you should make sure you can afford paying the expected sum, otherwise you will suffer a serious decrease of your credit rate. However, you still can get a loan with a bad credit history.
Step 2: Consider the Alternatives
When providing refinance it is always related to the significant change of your cash flow. No matter whether it is about cash-out-refinance or rate-and-term-refinance you always have to consider alternatives. What if the refinance is going to lead to increase of your monthly payment? Do the overall sum you are going to save worths that? Isn’t there an investing alternative that brings you more profit than saving on overall debt sum? If these things are considered properly you can be sure your decision wa made wisely.
Step 3: Make a Query
Once you have made a decision make a query in your bank and apply for refinance. It depends on your credit history and cash flow whether your application is going to be approved. You need to be aware that the higher is your credit rating the more there are the chances – for example, with rating of more than 600 your query is likely to be approved.
Debt refinance can be a valuable tool you can use if your income has grown or decreased significantly. Anyway, you should use it cautiously to make a maximum benefit from the move.