Taperman articles

Is Refinancing the Way to Go?

If you are considering refinancing your home to lower your monthly repayments it’s important to do plenty of research to see if it is really worthwhile for your own situation. These are the main points to consider when making this decision:

 Whether you are going to remain in your home or plan to sell up and move on

Is the interest rate lower than 8%?
How long will it take you to break even
How long it will take for your savings to compensate for the cost of your refinancing
 When considering a possible refinance don’t just look at the stated annual percentage rate (APR), but also take into account such factors as the terms of the mortgage and the amount of time it will take to pay off the loan principal and interest. Although a short loan period usually means lower interest rates it can also involve higher monthly repayments, but does have as its advantage greatly reduced interest costs over time. You also need to consider whether it’s best to choose a fixed rate mortgage, which keeps the same interest rate over the entire period of the loan, or an adjustable rate mortgage (ARM), which while offering a lower introductory rate than a fixed rate mortgage is liable to increase in the future if interest rates rise. The bottom line is that if you do plan to stay in your home for an appreciable length of time it makes sense to go for a fixed rate, but if you are planning to sell up and move on before the rate goes up, then you could save money by electing to go for an ARM.

 It’s worthwhile considering at this point that the very low interest rates of recent years are likely to give way to higher ones over a period of time.

 If you decide to refinance bear in mind that a lower rate of interest is often accompanied by having to pay fees to the lender on closing the deal. These are known as “origination fees”,” “discount fees” or “points”, where one point is equivalent to one percent of the total value of the loan. Loans with higher rates of interest do not carry such fees so it is important to weigh the pros and cons of either option.  Remember too that the costs of refinancing may be lower if you stay with your existing lender simply because this will speed up your application as they already hold your important financial information, and that this may certainly simplify the process! This is just one consideration however when coming to a decision as to whether to refinance or change your company – the important thing is to take your time in reaching the right decision for your particular situation, taking care to shop around, compare figures and asking lots of questions! You might wish to employ the services of a financial advisor but whatever you do make sure that you read the contract very thoroughly before you sign anything and don’t let anyone rush you into reaching a hasty decision. Good luck with your aim to reduce your monthly payments and do use your savings wisely, perhaps diverting them to a retirement plan or for your children’s education.

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