Refinance Calculator: Low Rates Provide Opportunities

Mortgage rates remain low enough to make refinancing worthwhile. If you want to reduce your mortgage rate and/or convert from an adjustable rate to a fixed rate mortgage, consider refinancing now. You may also qualify to refinance for extra cash for debt consolidation or making home improvements.

You want a fixed rate mortgage. Your credit card debt is sky high. Your kitchen needs refurbishing. Low mortgage rates can help with meeting these needs and more. Refinancing your mortgage can provide solutions to a number of financial challenges and other needs.

Refinancing and Your Home Equity

Refinancing involves replacing your current mortgage with e new one. Whether or not you can qualify to take out more than you currently owe (called cash-out refinancing) largely depends on how much home equity you have. Home equity is the difference between what your home is worth and how much you owe (or want to borrow) against it. Lenders typically limit cash-out refinancing to a maximum of 80% of a home's current value. Use a refinance calculator for comparing your current mortgage to proposed refinancing terms.

Lower Your Interest Rate

Financial experts suggest refinancing if you can lower your mortgage rate by a percentage point or more. This lowers monthly payments and could help you improve your cash flow or pay off your mortgage sooner. That said, a refinancing decision depends a great deal on how long you intend to keep the property and whether you can recoup the costs. And it's never a good idea to "chase rates" if you're concerned about your financial or employment security. Refinancing usually requires closing costs and they can be substantial. Using a mortgage payment calculator can assist in estimating monthly payment amounts (P&I) according to the amount you're refinancing, the refinance rate, and repayment term.

Refinance for Cash

High-cost consumer debt eats away at your financial security. You may be able to use cash-out refinancing for debt consolidation, which rolls your other debt into your monthly mortgage payment. Your new interest rate and mortgage payment should be less than the previous total of your monthly debts and mortgage payment. This can work only if you stop using consumer debt to finance your lifestyle; otherwise you risk carrying a larger mortgage, losing home equity, and incurring still more debt. Others want cash for upgrades. Home improvements can add value; cash out refinancing funds your projects. Before deciding which projects to complete, talk with local real estate professionals to learn which home improvements add the most value to your home. In most cases, updating kitchens and bathrooms is a good plan, but these improvements are among the most costly.

Refinance for Stability

Finally, you may wish to refinance out of an adjustable rate mortgage if you plan to be in your home for more than a few years. Many experts are predicting inflation, which could increase your interest rate and payment. Stabilizing your mortgage with a fixed rate might make sense while interest rates are low.

These are three popular reasons for refinancing, but deciding if and when to refinance depends on individual needs, financial standing, and real estate market conditions in your area.

Posted By :
Karen Lawson is a freelance writer with extensive background in mortgage banking. She holds BA and MA degrees in English from the University of Nevada, Reno.

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